BTS Group Holdings

Q3 2012/13 profit outstanding. 2013/14 fair value is B8.6 BUY

BTS Group Holdings Plc (BTS)

3Q12/13 net profit projected to grow notably due to profit from sale of VGI

According to seasonal benefits in 3Q12/13 (ended in December 2012), the

ridership is projected to grow continuously by 2.4% QoQ to 50.5 millions.

Combined with the average fare rate that's projected to sustain QoQ, BTS's

main revenue from the mass transit system business (62% of total revenue)

would grow by 2.4% QoQ. For the 2nd main business which is advertising

(30% of total revenue), it is projected to grow by 4.6% QoQ along with the

peak of advertising season in every year's last quarter. Accordingly, the

company's total revenue is projected to increase by 2.6% QoQ to B2.49bn.

Although there might be an offset from the selling and administrative

expenses that are likely to increase 8.8% due to the recognition of 1-month

employee bonus and less profit from VGI (stake declining from 96.4% to

68.15%) since BTS has sold some VGI shares, the norm profit in 3Q12/13 is

projected to stabilize QoQ at B394m. If B1.5bn of extraordinary profit from a

sale of VGI and B650bn extraordinary profit from a sale of Kampoo Property

Co., Ltd are included, this quarter's net profit would grow by 3.7x from the

prior quarter to B2.6bn.

Benefits from increasing fare next fiscal year included, driving profit by 5%

BTS's 4Q12/13 net profit is projected to reach the year's record high due to

the ridership in the main line (National Stadium - Chatuchak - On Nut -

Taksin) that tends to grow. This would be a result of 2 new stations extended

from Wongwian Yai station during the quarter and a launch of 12 new trains

on Sumkhumvit line. Moreover, the company is projected to substantially

recognize extraordinary profit of around B7.3bn due to a sale of future net

fare revenue (17-year concession) to Infrastructure Fund (BTSGIF). From next

fiscal year, there would be benefits from increasing the fare rate by around

6percent since April 2013 onward, as confirmed by the management. However, this

issue hasn't been included in our forecast, so we revise up BTS's net profit

forecast of fiscal 2013/14 by 5% under an assumption of the average fare rate

increased by 6percent since fiscal 2013/14. Accordingly, the company would get the

return in a form of more profit sharing as it holds 1/3 in BTSGIF (BTS would

switch from directly recognizing revenue of main extension line projects to

profit sharing from holding the fund since fiscal 1Q13/14). Under the new

forecast, BTS's net profit is projected to grow from the prior year by 5.5x to

B11.5bn. In case the extraordinary profit is excluded, norm profit in 2012/13

would stand at B1.6bn or 72.8% increase, likely to grow further by 61% in

2013/14.

2013/14 fair value is B8.6, applied after announcing 3Q12/13 earnings result

At present, the share price is close to 2012/12 fair value projected at B7.5.

Nevertheless, after the announcement of 3Q12/13 earnings result, 2013/14

fair value would stand at B8.6. This is due to benefits from increasing the fare

rate, the subsidiary VGI's 2013/14 fair value revised up from B78 to B110,

and also adding value to the property business based on the appraiser instead

of the book value. In addition, there is 17% upside from the current share

price. After completing establishment of BTSGIF in late-4Q12/13, BTs is

projected to possess tremendous cash. Shareholders still have a chance to

gain return in a form of extraordinary dividend yield. In case the company

announces to grant return in a form of treasury stock project, it would be a

positive sentiment for the share price. Therefore, we reiterate our

recommendation of "BUY" for BTS.