BTS Group Holding

BTS Group Holding Plc (BTS) 

 

We cut FY2016 forecast by 20% to reflect losses from its property JV and weaker media unit. It will return to growth of 20% p.a. in FY2017-18 as its property JV begins to contribute profit, its media unit recovers and mass transit grows. We like BTS for its high yield of 7% in FY2016 and its LT plan that includes new mass transit projects, new property ventures as well as other investments. A sale of its assets to BTSGIF to fund new projects could be another catalyst. BUY with a new SOTP PT of Bt12.  

Mass transit unit. BTS maintains its FY2016 (Apr 15-Mar 16) targets: ridership growth of 4-6% (vs. +9.5% in 4MFY16) and fare rate growth of 2% (vs. +0.3% YoY). It expects new O&M contracts for North and South Green extension lines to be signed in late 2015-early 2016 and bidding/negotiating for the LRT and Pink and Grey lines within 2016 and Light Green Line in 2017 (Figure 2).  

Media unit. BTS has cut its FY2016 media revenue growth target to -26% from -12%, after factoring in the economic slowdown, which reduced media revenue growth overall. Media in modern trade will drop out this year upon the expiration and termination of contracts with Tesco Lotus and BIGC in 4QFY15-1QFY16. 

Property unit. For its residential property JV (BTS and SIRI), the company has raised its condominium project value target for the five-year agreement to Bt100bn from Bt25-30bn. Of this, Bt24bn will be launched in FY2016 (Figure 3): 1) The Line Jatujak-Mochit, 100% sold out; 2) The Line Sukhumvit 71, 100% sold out; 3) The Line Ratchathewi, presales in Oct 15; 4) The Line Wongsawang, presales in Feb 16; 5) The Line Phaholyothin Park, presales in Oct 15; 6) a project in CBD, presales in Nov 15. Losses from these projects to the JV in FY2016 are estimated at Bt500mn, with profit upon transfers in Dec 2016-Jul 2019 (3QFY17-2QFY20). It targets 12% net profit margin.  

New investments and funding. SRT dual-track railway (Khon Kaen-Laem Chabang): BTS is interested, as it sees the potential for more shipments via rail from the current tiny 2-3%. If the government does invite private sector participation in this project, the bidding will start in 2H16. SRT land development at Kamphaeng Phet Road in Bangkok: BTS is undertaking a study on developing condominium and commercial projects on this land. Project with U City: BTS plans to develop a mixed-use commercial project (i.e. hotel and office building) via U City in Phayathai, which will be finalized this year. Funding: BTSGIF is studying acquiring BTS’s existing extension lines. This would give BTS the funding it needs for new investments, adding to its cash of Bt16bn (end-1QFY16) and estimated cash from BTS-W3 of Bt48bn.  

Maintain BUY. We cut its FY2016 earnings by 20% to factor in the losses from its property JV and weaker media. The earnings revision and rolling over TP to mid-2016 gives a new mid-2016 SOTP of Bt12 (from Bt12.5 at end-2015). This consists of: 1) Bt5.7 from mass transit: Bt1.7 from BTSGIF (market price, 33% stake), Bt2.8 from existing extensions and Bt1.2 from new North and South Green extensions (DCF); 2) Bt2.6 from media (VGI, market price, 73% stake); 3) Bt2.3 from property: Bt1.3 from 2x BV and Bt1.0 from U City (market price, 36% stake); 4) Bt1.4 from net cash.