BTS Group Holdings

Strong earnings, as expected; an even better quarter ahead

BTS Group Holdings Plc (BTS)

Earnings were in line with our estimate and the consensus

BTS posted a 3Q12/13 (Oct-Dec) net profit of Bt1,088m, up by 231% YoY and 58% QoQ. Stripping out gains of Bt711m from selling a land plot near Nana BTS Skytrain station and Bt3m from FX, 3Q12/13 core profit would be Bt430m, up by 56% YoY and 9% QoQ.

Results highlights

The core profit growth drivers were as follow. First, higher ridership numbers (up by 16% YoY and 2% QoQ to 50.3m pax), despite a relatively stable average fare (Bt25 in 3Q12/13 versus Bt24.8 in 3Q11/12 and Bt25.1 in 2Q12/13). Second, a greater earnings contribution from VGI Global Media Plc (VGI). Third, a bigger profit contribution from the property unit. Fourth, lower interest expenses (down by 35% YoY and 39% QoQ).

VGI posted strong bottom-line growth of 306% YoY and 7% QoQ for 3Q12/13. The property business reported YoY and QoQ earnings expansion, driven by greater condo unit transference during the quarter and the recognition of revenue from Eastin Grand Hotel Sathorn (which opened in Oct 2012). The firm transferred 55 condo units at Abstracts Phahonyothin Park (which started transferring in Dec 2012) and seven condo units at Abstracts Sukhumvit (up from 15 units in 3Q11/12 and 8 units in 2Q12/13).

Outlook

BTS's YoY and QoQ core earnings expansion momentum should continue through 4Q12/13. The profit contributions from the mass transit and media businesses are expected to be flattish QoQ, but the property unit will post notably stronger QoQ numbers. Condo unit transference at both the Abtracts Phahonyothin Park and the Sukhumvit projects should continue to rise. Note that ridership numbers in the Jan-March quarter are normally flat QoQ.

What's changed?

We have cut our FY12/13 net profit forecast by 35% to Bt2,651m because BTS has changed the way it reports its gain from selling VGI shares. The gain on sales ahead of VGI's IPO was booked in the balance sheet on the equity line (not to the income statement, as we had earlier assumed).

Recommendation

In our view, expectations of sustained strong earnings growth through 4Q12/12 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 a core earnings CAGR of 28percent for FY12/13-14/15 (against 14percent for the broad SET). Moreover, there may be 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 0.9x and a PBV of 2.5x—steep discounts to the regional means of 2.7x and 4.4x, respectively.