BTS Group Holdings

Up fair value by 13% to reflect growth potential BUY

BTS Group Holdings Plc (BTS)

To join bidding for first new extension line Bearing - Samut Prakarn

BTS has more positive factors at present. 1) 2013/14's income of VGI, a subsidiary

in which BTS holds 68.2percent stake, has grown 30%, beating our previous projection of

20%, so we revised up 2013/14's net profit forecast of VGI by 8%. At the same

time, VGI will also have additional income from leasing and advertising areas in 6

stations of Onnut - Bearing extension line which will be entered into contracts soon

(still not been included in VGI's forecast). 2) BTS will have additional income since

2017 from its management of the first new mass transit extension line, 12 stations

of a 13-kilometer-long route Bearing - Samut Prakarn, which has started the

construction since late-2012 and the MRTA will conclude the bidding and hiring

methods with the Ministry of Transportation soon. Preliminarily, we project the

bidding method to be a PPP gross cost like that of the Purple Line, which means a

private company will invest on the mass transit system and the government will pay

it back together with the hiring fee for running the new route throughout 30 years of

concession period. The bidding will start around September and BTS is very likely to

win because it is an extension line from its existing main route. For other routes for

which BTS has a chance to win biddings, none of the routes have started the

construction so far although the MRTA has aimed to open the biddings by this year.

3) There has been a progress for BTSGIF as it has already passed an investigation

of the DSI and will be established by April. Value of income that will be sold to the

fund has been estimated at B55bn, but the fund selling agent has appraised fair

value of the fund income at B60bn, which is better than our projection.

Profit growth including VGI benefit is 74%. Extension line will increase profit 10% a year

Due to benefits from the up revision of VGI's fair value and a clearness about the

Bearing - Samut Prakarn extension line, we raise our forecast for 2013/14 and

2014/15's norm profit of BTS by 5.3% a year on average, under an assumption that

includes total management income from the extension line at EBITDA margin close

to the hiring income from the existing mass transit lines. The new extension line is

believed to help increase profit base of BTS since 2017/18 (ending March 2018) by

10percent from the current forecast or around B500m a year (or an additional value of

B0.50/share). Under the new forecast, norm profit in 2013/14 will be B2.8bn,

growing 74percent from the prior year and 15% in the next year. At the same time, we

cut an extraordinary profit of B7.3bn from selling of BTS's net fare income to

BTSGIF from 2012/13's net profit forecast because the fund establishment was

postponed to April and the actual value of net fare box income sold is likely higher

than previously forecasted. Accordingly, we move the recognition of the

extraordinary profit to 2013/14 and increase it to B11bn. New 2013/14's fair value

is B13.7bn, increasing 5.3x.

Up fair value to B10.0 to be in line with VGI's fair value, implying 14% upside

BTS share price has rallied aggressively by 95% over the past year, New fair value,

including a 21% increase in VGI's fair value, the new extension line Bearing -

Samut Prakran, and higer-than-expected value of net fare income sale, is

B10.0/share, implying 14% upside. Plus a benefit from an extra dividend payment

at no less than B0.5/share (still not been included in the forecast) or a dividend

yield of 6% after the establishment of the BTSGIF, we therefore upgrade our

recommendation from HOLD to BUY again.