BTS Group Holdings

BTS Group Holdings Plc (BTS)

Investment thesis
Last week, we accompanied Mr Surayut Thavikulwat, CFO, on a non-deal roadshow to the UK. We sensed that investor interest in the stock centers around its earnings resilience to the domestic economic slowdown and prevailing political unrest. However, the political chaos may discourage many fund managers from taking positions in BTS for now—government dysfunctionality intensifies the risk of delays to the opening of tenders to manage new mass transit lines. The key takeaways were as follow:
Political confrontation boosted short-term traffic growth, but …
BTS ridership rose as the political temperature heated up in 2M14. However, ridership numbers normalized in March in tandem with the PDRC downsizing the scale of its protest. We expect FY13/14 (April 2013-March 2014) ridership growth of about 9% YoY, near the upper bound of BTS’s guidance range of 7-10% YoY.
… has intensified the risk of delays to new extension lines
Management said that because of the prevailing political chaos, it now expects the tenders for the management contracts for Dark Green South Line and for Dark Green North Line to open in 2015 instead of 2014. The Dark Green South Line is currently under construction, while the tender has opened for civil works on the Dark Green North Line—of the long suburban commuter lines that will connect to BTS’s existing network, the two routes should be the first to start operating.
Potential investment in China with more growth opportunities 
BTS and its Chinese partner, CITIC, are tendering for the concession to manage Line 16 of the Beijing subway, which is currently under construction (COD 2018). The winner of the tender is expected to be announced in May 2014. Although the project IRR is expected to be only moderate, it would be a springboard for BTS to expand its mass transit business in China.
Good long-term growth prospects for media & property units 
Despite the domesitc ecomomic slowdown and the political chaos, the long-term growth prospects for the media and property businesses remain good. In the interim, VGI’s unconventional media operations have been only modestly affected by the ad spend slump. With regard to property, the firm has a good sized land bank on which to build new projects or divest when conditions are more favorable.
Financially secure for future investment & dividend payments
With its strong balance sheet and the expected proceeds from BTS-W3 conversion, BTS should have substantial financial capacity to invest in future projects and still pay a good dividend.