BTS Group Holding

BTS Group Holding Plc 

BTS shares have underperformed the SET by 9% over the past three months, pricing in: 1) its weak FY2016 (Apr 2015-Mar 2016) from property JV losses and weak media; 2) 4QFY16 to be this year’s bottom on extra items; 3) concerns on delays of new mass transit projects. At this price, we like BTS for its high yield of 8% in FY2016 (to announce final DPS in June) and progress on new Green Line extensions. BUY with a new SOTP PT of Bt10.5 (from Bt12). 

 

Mass transit. MRTA and BMA have finally concluded the transfer of the North and South Green line extensions and this will be sent to the Cabinet for consent next week. BTS expects the MRTA and BMA to sign the MoU this month and then award the O&M contracts for these Green Line extensions in mid-2016. BTS is interested in bidding or negotiating for the Pink, Yellow, LRT and Grey lines in 2016. It maintains its FY2016 targets: ridership growth of 4-6% (vs. 7% in 10MFY16) and fare rate growth of 2% (vs. 2% in 10MFY16). In FY2017, it targets ridership growth of 5% (organic and feed-in from Purple Line from Aug 2016) and fare rate growth of 1%. 

 

Media (74.8% in VGI). The economic slowdown and the termination of modern trade contracts brought a 32% YoY contraction in media revenue in 9MFY16, making it likely to miss its revenue target of a 26% contraction in FY2016. Happily, recent additions to its media stable will help add growth going forward. The first new addition is the appointment as VGI as the sole agent to manage ad screens in 219 condominiums (AP, LPN, U Delight, Grand Unity Development) under partnership with Artista, which plans to expand to cover 300-400 condominiums in 2016-17. Second, VGI acquired 20% in Aero Media, which plans to expand its LCD screen network in airports and gas stations from 32 screens to 342 screens in 2016 and 442 screens in 2017-18.

 

Property. Its residential property JV (BTS and SIRI) continues to target condominium project value of Bt100bn for the five-year agreement. The JV launched three projects (Bt11bn) in 2016, which sold out. It will launch six projects (Bt23bn) in 2017. We expect this JV to record losses from expenses on new projects in FY2016, with narrower loss in FY2017 and then turning to profit in FY2018 once transfers start (2HFY17-1HFY19). BTS restructured its property business by transferring all assets and liabilities to a new holding company, to streamline financial reporting and management. BTS estimates expenses from the restructuring of Bt385mn: Bt175mn was booked as net tax income in 3QFY16 and Bt560mn will be booked as expenses in 4QFY16-1QFY17. This leads us to expect 4QFY16F to be this year’s bottom. 

 

Maintain BUY. We cut our forecast by 5% in FY2016 and 8% in FY2017, factoring in property restructuring expenses and weaker media. Our new 12-month SOTP TP is Bt10.5 (from Bt12), reflecting the lower market value of VGI and U City and the property divestment. This consists of: 1) Bt5.6 from mass transit: Bt1.7 from BTSGIF (market price), Bt2.7 from existing extensions and Bt1.2 from new Green extensions (DCF); 2) Bt1.9 from media (VGI market price); 3) Bt1.6 from property: Bt1.1 from 2x BV and Bt0.5 from U City (market price); 4) Bt1.4 from net cash.