BTS Group Holdings

BTS Group Holdings Plc (BTS)

Investment thesis
Expectations of a special dividend payout will catalyze the share price in the near-term, in our view. And there’s much more to the BTS growth story over the long-term—new mass transit lines and the unlocking of value from its property assets. The stock’s FY13/14 PEG ratio is an undemanding 0.9x, which represents a steep discount to the Asian mean of 2.4x.
BTSGIF priced at the high-end, prompting profit forecast upgrades  
Last Friday, BTS announced that the BTS Rail Mass Transit Growth Infrastructure Fund (BTSGIF) IPO is priced at Bt10.80/unit, the upper bound of the assumed price range of Bt10.40-10.80/unit. As such, the size of the offering will be about Bt62,510.40m.
Based on the final IPO price for BTSGIF, we have revised up our core profit forecasts by 23% to Bt2,313m for FY13/14 and by 14% to Bt2,998m for FY14/15 to factor in: 1) greater expectations for dividend revenue from its 33.33% holding in BTSGIF, 2) more interest income from the cash proceeds, 3) management fees paid by BTSGIF and 4) lower interest expenses (assuming that some of the proceeds are used to pay down loans). We have also ramped up our FY13/14 net profit forecast to Bt22,824, as we now expect a greater extra gain of Bt20,510m from selling net farebox revenue to BTSGIF.
A special dividend is very likely
Considering the scale of the IPO proceeds to be received, BTS is very likely to pay a special dividend, we believe. We have, therefore, conducted a scenario analysis for the expected dividend payment (see Figure 2). Our study assumes that BTS will reserve cash to invest in three new mass transit lines and a dividend payout range for the remaining funds raised from the IPO of BTSGFI of 50-100%, making for a special DPS in the region of Bt0.60-1.20.   
New mass transit lines & the unlocking of property asset value 
In our view, the firm still has substantial scope for business and profit growth over the next few years from new mass transit lines and by unlocking value from its property assets. BTS plans to bid to manage lines that are direct extensions of—or connect to—its existing Green Line: 1) Green Line extensions (Morchit-Saphanmai and Bearing-Samut Prakan), 2) the Pink Line (Khae Rai-Minburi), and 3) the Light Rail Train (Bangna-Suvarnabhumi). Tenders (for construction and management of lines) are expected to open for the new Green and Pink lines this year, while the Light Rail Train is still on the drawing board.
Moreover, BTS has significant land holdings in Bangkok. It has built condos on two plots and a hotel on a third; other plots have yet to be developed. The firm might even decide to list its property assets on the SET, which would enable it to mark-to-market its shareholding.