BTS Group Holdings

Further strong earnings growth

BTS Group Holdings Plc (BTS)

Investment thesis

In our view, expectations of strong 2H12/13 earnings growth together with forward sales of net farebox revenue to a planned Infrastructure Fund (IFF) will boost BTS's share price further. Also, good prospects for all key businesses should support earnings growth of 20% in FY13/14 (against 16% growth for the broad SET). Moreover, there is scope for upside to our FY13/14 bottom-line forecast from profit accretion from the IFF and further sales of land plots. Valuation-wise, BTS is undemanding—FY13/14 PEG of 0.58x and a PBV of 2.1x, deeply discounted to the regional means of 0.99x and 3.2x, respectively.

Record high earnings anticipated for 3Q12/13

We expect BTS to post a record net profit of Bt2,195m for 3Q12/13 (Oct-Dec), up by 568% YoY and 218% QoQ. Stripping out assumed gains of Bt1,450m from divesting some VGI shares and Bt767m from selling land near Nana BTS Skytrain station, 3Q12/13 core profit would be Bt421m, up by 53% YoY and 7% QoQ. The drivers of the modeled strong core profit growth were: 1) higher ridership numbers (up by 16% YoY and 2% QoQ to 50.3m pax), 2) a greater earnings contribution from VGI Global Media Plc (VGI) and 3) a bigger profit contribution from the property business.

VGI posted strong bottom-line growth of 306% YoY and 7% QoQ for 3Q12/13. The property business is expected to report YoY and QoQ earnings expansion, driven by greater condo unit transference during the quarter and a higher occupancy rate at the Eastin Grand Hotel (Sathorn). We expect the firm to transfer nine condo units at Abstracts Sukhumvit (15 units in 3Q11/12 and eight units in 2Q12/13). Meanwhile, the occupancy rate at its new hotel rose to 80% in 3Q12/13 from 60% in 2Q12/13.

Profit growth sustainable through 4Q12/13

BTS's YoY and QoQ core earnings expansion momentum should continue through 4Q12/13. The earnings contributions from the mass transit and media businesses are expected to be flattish QoQ, but the property business will post significantly stronger QoQ numbers. The Abtracts Phahonyothin Park project (for which presales have risen to 73percent from 70% in Sept 2012) started transferring condo units in January. Note that ridership numbers in the Jan-March quarter are normally flat QoQ.

Earnings upgrades underpinned by higher VGI profit forecast

We have revised up our net profit forecast for FY12/13 by 7% to Bt4,076m and our long-term core earnings projections by 11% to factor in our recent bottom-line upgrade for VGI. As such, our end-March 2014 target price rises to Bt8.90 (from Bt7.70).