BTS Group Holdings

BTS Group Holdings Plc (BTS)

Investment thesis
In our view, expected strong earnings growth in 2Q12/13 and 2H12/13 should catalyze the share price going forward. Moreover, there is scope for upside to our FY13/14 bottom-line forecast from further divestment of land plots that are available for sale. In the short-term, overhanging concerns about the dilution effect of the conversion of convertible bonds (CBs) may cap the share price performance. But we expect such concerns to soon ease, as the investor put option date (January 25, 2013) is approaching and we believe that most of the CB holders will sell the CBs back.
Valuation-wise, BTS’s valuation is undemanding—an end-March PBV of only 1.4x, deeply discounted to BMCL’s 10.2x and the regional mean of 2.5x.    

 Strong core profit growth anticipated for 2Q12/13
We expect BTS to post a 2Q12/13 (July-Sept) net profit of Bt631m, up 104% QoQ (but down 51% YoY; in 2Q11/12, BTS received a belated Bt1bn payout from the Treasury Dept). Stripping out the expected gain from the divestment of land in Phuket of Bt250m, 2Q12/13 core profit would be Bt381m, up by 40% YoY and 18% QoQ. The drivers of the assumed strong core profit growth were: 1) higher ridership numbers (up by 9% YoY and 6% QoQ to 49.4m pax) and 2) a greater earnings contribution from its media subsidiary, VGI Global Media Plc. Meanwhile, the property business is expected to post flattish QoQ numbers; the firm may transfer 10 condo units.    

Strong earnings growth momentum in 3Q12/13
BTS’s earnings growth should sustain momentum through 3Q12/13 (Oct-Dec), driven by high season for its mass transit and media businesses and extra gains. Based on historical data, ridership numbers increase by an average of 9% QoQ in the Oct-Dec quarter. Furthermore, the gross profit margin of its media business is expected to expand QoQ, led by the top-line. We also anticipate that BTS will book a Bt1.5bn extra gain from the divestment of some VGI shares and a Bt767m extra gain from the sale of a land plot near the Nana BTS skytrain station in 3Q12/13.

Significant FY12/13 earnings upgrade
We have revised up our core profit forecast for FY12/13 by 4% to Bt1,227m and our long-term core earnings projections by 3% to factor in our recent bottom-line upgrade for VGI. In addition, we have raised our FY12/13 net profit forecast by 222% to Bt3,806m to reflect the expected extra gains to be booked (noted above). As such, our end-March 2013 target price rises to Bt7.70 (from Bt7.50). We expect a consensus earnings forecast upgrade once BTS announces its 2Q12/13 results.