BTS Group Holding

High profit, interim DPS to put it in the lead BUY

BTS Group Holding Plc (BTS)

3QFY13F net profit of Bt2.6bn. We expect its 3QFY13F (Oct-Dec 2012) net profit to be

highest in the sector at Bt2.6bn, +685% YoY and +273% QoQ, largely off extra gains. BTS

will record extra gains of Bt2.2bn: Bt1.6bn from the sale of VGI shares for listing and

Bt680mn from the sale of land on Sukhumvit. Core earnings are estimated at

Bt335mn, +21% YoY but -15% QoQ. Behind the rise YoY is: 1) more riders (+17% YoY,

based on Oct-Nov 12); 2) new contracts at Big C/Big C Extra (multimedia) and Big C

Extra (sales floor area) since 1HFY13; 3) continued unit transfers at its condo, Abstracts

Sukhumvit 66/1. The drop QoQ comes from: 1) the rise in SG&A expenses from VGI

listing and 2) lower VGI earnings contribution after stake was cut to 70.7% upon listing

on Oct 11, 2012. The results will be released Feb 13, 2013.

ST catalyst from interim DPS. We expect the announcement of an interim DPS in

mid-Jan 2013 of at least Bt0.09/share, equivalent to its 1HFY13 EPS. Meanwhile, it has

Bt6.5bn (Bt0.6/share) in excess cash on hand from recent extra items (net proceeds

from the sale of land, VGI listing, and compensation from Treasury Department).

Based on cash on hand, its interim dividend might even be higher in the range of Bt0.2

to Bt0.6 depending on whether it reserves cash for ST loan repayment or not.

4QFY13F earnings to hit a new high. We look for a new high in 4QFY13F (Jan-Mar

2013) earnings. Backing our expectation is extra gains of Bt5-12bn (not yet in our

forecast) from the setup of an infrastructure fund to which it will sell farebox revenue

from its core skytrain system in Feb 2013; target proceeds are Bt50-60bn. Aside from

that, core earnings will be robust from: 1) more riders brought by the opening of

another extension (two stations in Wongwianyai-Bangwa) in Jan-Feb 2013 and the

new carriages (+23%) by Mar 2013; 2) more advertising space on the new carriages; and

3) start of transfers of units in its Abstracts Paholyothin condominium.

Validity of O&M contracts. The Department of Special Investigation (DSI) is accusing

the officials of the Bangkok Metropolitan Administration (BMA), and Bangkok Mass

Transit System Pcl (held by BTS) and Krungthep Thanakom (held by BMA) of

involvement in granting a concession to extend the skytrain service without obtaining

the required prior approval from the Interior Ministry. BTS counters with the

statement that the new 30-year contracts (starting from May 8, 2012) for the Bangkok

Mass Transit System are operation and maintenance (O&M) contracts - not a

concession - and that the validity of the contracts has already been confirmed by the

Office of the Juridical Council. In the worst case, the question over the validity of the

contracts will be sent to the courts to decide - a lengthy process.

Maintain BUY with PT of Bt7.8. The share price pullback from the news about the

investigation by DSI is in our view an opportunity to accumulate, given: 1) minimal

contribution from new O&M contracts at Bt0.3/sh (not yet included in our forecast)

and 2) ST catalysts from potential special DPS and record high 2HFY13F earnings.