BTS Group Holdings
Better-than-expected profit from VGI. Likely to raise fair value to B7.7-B8.0 BUY
BTS Group Holdings Plc (BTS)
Supported by surprising profit from VGI and promising growth in property business
We are likely to revise up our earnings forecast and fair value of BTS after 2Q12/13’s earnings announcement and the analyst meeting on Monday due to 2 main reasons. 1) VGI (a subsidiary in
which BTS indirectly held 96.4% stake in 2Q12/13 and 68.2% stake after public offering in October) posted 2Q12/13’s net profit better than our projection, so we are considering revising up fair value of VGI from B50 to B78, which is considered as an indirect benefit for BTS. 2) BTS has changed its strategy to focus less on the property business, reflected from its continuous sale of subsidiaries which have waited-to-be-developed lands over the past 2 months. We believe the company would continuously sell some of undeveloped assets and at the same time join with other operators to develop assets in potential areas such as near Phayathai station. Accordingly, we are likely to review our calculation method for fair value of the property business from PER based to PBV based to be consistent with the business restructure.
Mass transit business sale to infrastructure fund would generate great profit
Apart from the 2 positive factors mentioned above, BTS’s subsidiary, BTSC, an investor in the mass transit business (with remaining concession period of 17 years) has a plan to sell the 2
routes of mass transit business: 1) Onnut – Mo Chit and 2) Taksin – National Stadium, to an infrastructure fund. If the sale is complete as planned 1) BTS will book a very large extraordinary profit from the asset sale (while the rest is book value which is now standing at B45bn), 2) BTS will receive operation and maintenance income, and 3) BTS will recognize dividend income from its shareholding in the infrastructure fund by 33.33% of the total share. All these are upside that would influence us to revise up the fair value.
New fair value is B7.7-8.0. Upside is very high. Reiterate BUY
After the forecast revision, new 2012/13’s fair value, using sum of the parts, would increase to B7.7-8.0 (fully diluted, with effect from convertible bond and BTS-W2 included). The current share price has 23.5%-28.0% upside from the new fair value. Consequently, we like BTS the most, select it as a top pick of the sector and recommend “BUY”. As the share price might weaken from trading of 66 million common shares from the convertible bonds, it is a time to accumulate.
