BTS Group Holding

BTS Group Holding Plc (BTS) 

 

With talks between Ministry of Transport and BMA now direct, the transfer of the extension of North and South Green lines to BMA will wind up in July 2015, then new O&M contracts will be awarded to BTS in late 2015-early 2016 (in line with consensus). The development of other mass transit projects and new dual-track railway will be another share price catalyst and upside to our PT. We also like BTS for its solid 1QFY16 and high dividend yield. Maintain BUY with SOTP PT of Bt12.50.   

Progress on the extension of Green lines. The government is looking for a way to speed up the O&M contracts for the South and North Green line extensions to meet its goal of startup in 2019-20. To comply with government policy to have the entire Green Line system under a single agency, the MRTA held talks with the BMA to transfer its responsibility for these lines to the BMA, but did not agree with the BMA’s condition, i.e. gradual payment for civil work over 10 years. After that the government considered allowing the MRTA to seek an O&M contract operator directly, but this will take time given the partnership-private partnership (PPP) model. The June 10 resolution by the Office of the Commission for the Management of Land Traffic has the Minister of Transport talking directly with the BMA with the aim of transferring these projects by end-July 2015. This falls in line with BTS’ earlier timeline: projects transferred to BMA in 3Q15, then BMA negotiates new O&M contracts with BTS in late 2015-early 2016. Note that we include Bt1.2/share for the incremental value of the O&M contracts in our PT. 

Progress on other mass transit projects. Pink and Yellow lines: The MRTA board recently decided to pass the entire project investment under PPP net cost to the company winning the concession – both construction and operations – for the Pink and Yellow Lines; it will put this to the cabinet for approval this year. Under this scheme, the concession holder will be responsible for the entire investment and in return get all of the fare box revenue. This is a switch: earlier, the government was to invest in the construction of the rail system with the concession holder operating and maintaining the system and getting only that O&M revenue. BTS is still interested in these projects (notably the Pink Line, which intersects the Green Line). BTS expects the government to offer subsidies for the concession holder to keep fares from being too high. Other projects: BTS keeps its expected timeline for bidding/negotiating other projects at: LRT in 2015, Grey Line in 2016 and Light Green Line in 2017. 

New dual-track railway project. Newspapers report that BTS has sent a proposal to the Minister of Transport suggesting that BTS invest in the 500km Khon Kaen-Laem Chabang 1-metre dual-track railway, worth Bt70bn, carried out under the PPP model. BTS is conducting a preliminary study with regards to investment scheme and amount, with details in late 2015 at the earliest. If this plan flies, project IRR should be above its 10-12% hurdle rate. It has net cash of Bt11bn, potential additional cash from BTS-W3 of Bt48bn (exercise period Dec 16-Aug 18 at Bt12/share), and target DE of up to 3:1. On this basis, we expect BTS will need to raise more than Bt200bn to fund its new projects: six mass transit lines worth Bt120bn plus Bt70bn for the dual-track railway.