BTS Group Holdings

BTS Group Holdings Plc (BTS) 

Below estimates 

BTS posted a 3Q14 (Oct-Dec 2014) net profit of Bt981m, up 118% YoY and 55% QoQ. Stripping out a Bt368m gain on sales of land, a Bt70m gain on sales of investments, a Bt53m gain on sales of warrants, and a Bt2m gain on sales of assets, core earnings for the quarter would be Bt488m, up 9% YoY but down 20% QoQ. The result was 5% below our estimate and that of the consensus, due to lower-than-expected earnings contributions from media and property businesses and lower extra gains than modeled. 

Results highlights

The key driver of the YoY core earnings growth was the lower effective tax rate, which decreased to 39.3% in 3Q14 from 49.5% in 3Q13. Meanwhile, the QoQ core earnings contraction was due to: 1) a lower contribution from the mass transit business, 2) a lower contribution from VGI and 3) weaker profit from the residential property business. For the mass transit business, the O&M revenue decreased 2% QoQ to Bt386m, while the share of income from investment in BTSGIF declined 11% QoQ to Bt194m. Note that total ridership during the quarter rose 5% YoY and 3% QoQ to 56.4m trips, while the average fare was stable YoY, but rising 1% QoQ to Bt26.90/trip. 

VGI’s net profit declined 5% YoY to Bt301m (but rose 14% QoQ, driven by an extra gain). Meanwhile, the residential property business reported a QoQ profit contraction—another 21 condo units at Abstracts Phahonyothin Park transferred in 3Q14 (131 units in 3Q13 and 33 units in 2Q14). 

Outlook

BTS’s 4Q14 core earnings (Jan-Mar 2015) are expected to soften both YoY and QoQ, due to smaller contributions from its residential property business (YoY), higher SG&A expenses (YoY), and smaller contributions from its media business (QoQ) on the back of the low ad-spend season. Meanwhile, the 4Q14 bottom line is expected to both YoY and QoQ, driven by an expected gain from asset sales. 

What’s changed?

While we have retained our FY14 core profit forecast of Bt2,193m, we have revised up our FY14 net profit forecast by 24% to Bt2,709m to reflect an extra gain booked in 3Q14. There is a potential upside to our FY14 earnings forecast from an additional extra gain that can possibly be booked in 4Q14.

Recommendation

Expectations of strong bottom-line growth in 4Q14 and anticipation of new state infrastructure projects will boost the share price in the months ahead, we believe. BTS currently trades at an end-March 2016 PBV of 2.4x, 0.1SD above its long-term mean of 2.2x, which we believe is justified as there is scope for upside to BTS’ long-term earnings from management contracts for new mass transit lines.