BTS Group Holding

BTS Group Holding Plc (BTS)

 

Solidly grounded financially as a net-cash company, BTS is ideally situated to get in on new rail projects, both mass transit and dual-track railway. It has new O&M contracts for the extension of North and South Green lines and we have valued these at Bt1.2/share in our PT. Progress on other new projects will continue to boost share price and widen the upside to our PT. We also like BTS for its robust 1QFY16 earnings (Bt2.3bn extra gain from the sale of land to U City) and high dividend yield of 7% in FY2016. Maintain BUY with SOTP PT of Bt12.50.   

 

We hosted an event with local fund managers to provide an update of the progress on Thailand’s rail projects, inviting speakers from BTS and the Office of Transport and Traffic Policy and Planning. Their comments are summarized below.   

 

Presented by Khun Surapong Laoha-Unya, Executive Director of BTSG and CEO of BTSC, Khun Daniel Ross, Financial Director, and the IR team. 

 

On May 26, 2015, the Cabinet approved the strategic plan for private participation in state projects in 2015-2019 for 20 businesses or 65 projects worth Bt1.4trn. This was done to speed up the country’s infrastructure development, increase competitiveness, reduce the government’s investment and public debt burden and improve the efficiency of resource allocation. This plan includes eight mass transit projects: 1) Dark Green South (Bearing-Samut Prakarn); 2) Dark Green North (Mo Chit-Saphan Mai-KhuKhot); 3) Orange East (Thailand Cultural Center-Minburi); 4) Orange West (Taling Chan-Thailand Cultural Center); 5) Purple (Taopoon-Kanchanapisek Road); 6) Pink (Khae Rai-Min Buri); 7) Yellow (Lad Prao-Sam Rong); 8) Blue (Hua Lamphong – Bang Khae, Bang Sue – Tha Pra).  

 

BTS has put the bidding/negotiating for six mass transit projects over 2015-17 at the top of its list. These are the South and North Green line extensions, Pink Line and LRT in 2015, Grey Line in 2016 and Light Green Line in 2017. BTS estimates the investment budget for these six lines at Bt123bn. It is studying bidding for the Orange and Yellow Lines, which it expects will take place in 2015-16.  

 

 BTS is keen to broaden its horizon and to this end is studying other investments, beginning with the 502km Khon Kaen-Laem Chabang 1-metre dual-track railway (under the SRT), as the government is considering inviting private sector participation. Changing a line from single-track to a double-track will shorten the transport time and allow more trains to run, increasing the viability of using rail lines to ship goods from the northeast to the seaport at Laem Chabang. This is hoped to increase the amount of shipments from only 2-3% now going by rail. All routes are connecting, making it easier to manage, and the EIA process is close to completion. A second venture it is interested in is land development: it is undertaking a preliminary study on developing condominium and commercial projects on a plot of SRT land on Kamphaeng Phet Road in Bangkok. BTS has not yet finalized the investment scheme or amount for either project; it expects to provide details in late 2015 at the earliest. If it does decide to take on these projects, it estimates it will then take another 6-8 months to pass through the processes related to the PPP (public-private participation) model. BTS maintains its project IRR hurdle rate at above 10-12% for new projects.  

 

Funding for these plans is amply provided for by its cash on hand of Bt24bn now, 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, BTS can raise more than Bt200bn to fund any new projects.