BTS Group Holding

BTS Group Holding Plc (BTS)

BTS has underperformed the SET by 8% in the past six months, pricing in a weak FY2016 and concern on delays in mass transit projects. Its mass transit is looking better, as is media and property JV and earnings are poised to improve in 2HFY17. New mass transit projects in the next 6-12 months will be another catalyst. BUY with a SOTP PT of Bt10.5.

 

Mass transit unit. BTS targets FY2017 ridership growth of 5-6%, backed by organic growth and feed-in from the Purple Line from Aug 2016. It plans for fare rate to grow 1% on a lower discount for the Rabbit card and its O&M revenue to grow by 3-4%. 

 

New projects: Talks between BTS and the BMA are ongoing after the MRTA transferred project responsibility for South and North Green line extensions to the BMA and BTS expects to sign the O&M contracts for these this year. On May 23, BTS signed contracts to buy 184 new carriages: 156 (85%) for these Green line extensions and 28 (15%) for the existing Green line (BTSGIF). Cost is Bt11bn, which it will pay gradually over FY2017-19, mostly using debt. Interest expenses for the new extension lines will be capitalized and not impact the P&L over the period when payment is being made, then will be reimbursed using O&M revenue after the Green line extensions start up in 2019-20. BTS will bid for the Pink and Yellow Lines under PPP net cost scheme. Bidding is expected to open in mid-2016 with contracts signed in early 2017. It also plans to bid/negotiate for the LRT, Grey, and Light Green Lines in 2017. We have put Bt1.4/share for the additional value of the two Green Line extensions into our TP, but no other lines.

 

Media unit. BTS targets FY2017 revenue to grow 50% YoY to Bt3.1bn. Of this, 61% will come from BTS media, 26% from outdoor media, 8% from office building, and 5% from others. Revenue from BTS media will be Bt1.9bn (+7% YoY) from higher occupancy rate and seven new extension stations. It expects Bt800mn revenue from outdoor media (MACO) after consolidating in FY2017 (holding at over 50% after the tender offer in July from 37.4% as of May 31) rather than as equity income in FY2016 (25% stake). Revenue from office building media will be Bt250mn (+25% YoY), from raising price and adding more buildings. Revenue from other media (i.e. Chamchuri Square and Empire Tower) will be Bt150mn (+240% YoY). 

 

Property unit. BTS targets FY2017 revenue of Bt680mn, down 24% YoY, believed to be from the absence of revenue from Condominium Abstract Phaholyothin

 

(divested to SIRI in Oct 2015) and Eastin Grand Sathorn Hotel (divested to U City in Apr 2015). BTS estimates the loss from BTS&SIRI JV at Bt100mn in FY2017 (narrower than –Bt270mn in FY2016), factoring in new project transfers (The Line Sukhumvit 71, worth Bt2 bn) in Dec 2016-Mar 2017 plus expenses from the launch of six new projects (worth Bt23bn) in FY2017. The contribution from U City should improve from –Bt144mn in FY2016 after it changed to record stock market investment as for LT investment, not trading. 

 

Financial. Investment funding is accessed easily given its low net D/E of 0.1x at end-FY2016, potential additional cash from BTS-W3 of Bt48bn (exercise Dec 16-Aug 18 at Bt12/share), and target DE of up to 3:1. BTS is reverting to a payout of no less than 50% of profit on its own financial statement to give it room to invest. BTS assures dividend will be competitive with those of companies included in the SET50 index (3-4% p.a.).