BTS Group Holdings

BTS Group Holdings Plc (BTS)

1Q13/14 profit makes historical high. Norm profit disappointing from tax expense
1Q13/14 net profit (ended June 2013) stood at B10.8bn. Of the amount, B10.4bn was
an extraordinary profit from a sale of future fare box revenue from operation of the
core BTS sky train system to BTSGIF. The norm profit was B439m, growing
125.8%yoy from the following businesses. 1) Mass transit: The profit from operation
stabilized yoy. Although the company stopped recognizing the fare box revenue from
the core network, it was compensated by a share of profit of B124m from its 33.3%
shareholding in BTSGIF and an interest income of B280m for the money from BTSGIF
transaction the company had deposited to a bank for future investment. 2) Media: The
operating profit increased 42.7%yoy due to an income from additional advertising
spaces in 35 new bogies. 3) Property: The business could reverse from a loss in
1Q12/13 to a profit in this quarter because of a transfer of a 225-room condominium,
Abstract Phaholyothin (no transfer in 1Q12/13). 1Q13/14 norm profit was lower than
expected, comprising only 15.6% of the full year forecast, because the effective tax
rate was higher than usual at 36.5% due to 2 main reasons: 1) BTS had to book a tax
expense of not less than B100m for a profit before tax from the core BTS sky train
system operation. This is because the Revenue Department has still not concluded
whether the sale of the future fare box to BTSFGIF is deemed as a real sale, which
means the company would no longer have to pay tax for the mass transit business, or
only a capital raising through the fund for the business operation, which means the
company would have to continue paying the tax (in our current forecast, we assume
that the deal as a real sale). 2) BTS began to book a deferred tax, according to the
accounting standard, for the first quarter at B55m.
- Profit to grow in rest of year. Cut forecast due to higher-than expected tax rate
The overall profit outlook is projected to improve in the rest of the year. 1) Mass
transit: BTS would recognize higher share of profit from BTSGIF due to a fare hike of
7% that has taken effect since 1 June and continuously increasing passengers as a
result of school holidays. Service capacity has increased after 35 new bogies were
added to the system, while 20 others are waiting in the end of the year. 2) Media:
There has been a benefit from additional advertising spaces in the new bogies, while
BTS also has a plan to replace the static advertising boards on platform (20 stations),
which have low advertising rate, with giant digital screens, which will have higher
advertising rate (effective in 3Q13/14). However, as 1Q13 profit was lower than
projected and the company still has to wait for the conclusion from the Revenue
Department regarding the deal with BTSGIF and tax, we adopt a conservative method
in the new forecast, cutting the net profit for 2013/14 and 2014/15 respectively 9%
and 29% by including an effect from the scenario that the company has to pay the tax
for the mass transit business. Under the new forecast, 2013/14 net profit would be
B12.4bn, growing 5-fold from the prior year, while 2013/14 norm profit would be
B1.9bn or the growth of 30%, and with 12% growth in 2014/15.
- New fair value has limited upside, but dividend remains attractive
Under the new forecast, new 2013 fair value is B9, implying only 4.7% upside. We
downgrade our recommendation from BUY to HOLD as the dividend is still attractive
from the dividend payment policy in 2013/14, 2014/15, and 2015/16 at B0.50, B0.58,
and B0.67/share, respectively (dividend yield of 5.8% p.a.). Another positive factor is
a bidding of a new extension mass transit line. 1Q13/14 dividend is announced at
B0.19/share (dividend yield of 1.2%), going XD on 22 August.