BTS Group Holding

BTS Group Holding Plc (BTS)
Positive guidance for FY2014. In FY2014 (Apr 2013-Mar 2014), BTS targets ridership growth of 7-10% YoY, backed by the opening of the Wongwienyai-Bangwa extension (two stations in Feb 2013 and another two stations in Dec 2013) and the delivery of new carriages (35 carriages in late FY2013 and 20 more in late FY2014) that will add 36% to capacity. BTS expects the effective fare rate to rise by 6.5%, with fare rate rising to Bt15-42/trip from Bt15-40/trip from 1 June 2013 onwards. It expects strong revenue growth of 30% YoY in its media unit, powered by an increase in its advertising area (more carriages, more office buildings and better utilization of its sales floor area for modern trade contracts) and a better price from its strategy to bundle products. For its property unit, it expects revenue from its Abstracts condominium projects at Bt2.4bn and hotel occupancy rate at 75%.
3-year plan announced. BTS has set a progressive dividend policy at an amount of no less than Bt6bn for FY2014, Bt7bn for FY2015, and Bt8bn for FY2016. Its ability to pay a dividend of no less than Bt21bn in FY2014-16 will be supported by operational profit plus the extra gains from the infrastructure fund transaction. This implies a DPS of Bt0.53-0.70, equivalent to an annual dividend yield of 6-8% in FY2014-16. It intends to bid for new mass transit projects (Figure 1-2) with a targeted minimum IRR of 12% on the Green Line (bidding expected in Sep 2013) and the Pink Line (bidding expected in Oct-Dec 2013) with total project costs of Bt49bn (E&M only) and Bt92bn (E&M and civil). Lastly, it will emphasize capital preservation (inflation adjusted) and liquidity flexibility.
Earnings raised. We upped expected net profit to Bt16bn (from Bt2.1bn) in FY2014 and Bt3.1bn (from Bt2.7bn) in FY2015. Behind this is: 1) Bt13bn extra gains from the sale of net farebox revenue from the core system to BTSGIF in 1QFY14; 2) Bt900mn in FY2014 and Bt600mn in FY2015 in interest income from the remaining proceeds on the sale of farebox revenue to BTSGIF (it will bank the money to pay out in dividends and to bid for projects); 3) management fee and dividend income from BTSGIF (BTS now holds 33%), a change from full consolidation of core system operations; 4) a lower contribution from VGI from the reduction of its stake to 64.4% from 70% previously.
Maintain BUY. We are now more positive on its FY2014 outlook, backed by a concrete three-year plan for a progressive dividend payment and upcoming new projects. We raised our SOTP PT to Bt10.3 (from Bt10) to reflect the earnings adjustment and the rise in VGI’s market value. Our SOTP PT consists of Bt3.4 from mass transit - Bt1.9 from core system (BTSGIF - market value) and Bt1.5 from extension lines (DCF) - Bt2.3 from media (VGI - market value), Bt1.9 from property (2x BV), and Bt2.7 from net cash.