BTS Group Holdings

Estimating the impact of selling net farebox revenue to BTSGIF

BTS Group Holdings Plc (BTS)

Investment thesis

In our view, the upcoming sale of net farebox revenue to a planned Infrastructure Fund (BTSGIF) will attract stronger investor interest in the stock. We think the current share price implies a selling price of Bt50-55bn with a 15% holding discount for VGI. If the selling price is above Bt60bn (exceeding the upper range of the indicative price), it would be a positive surprise for the market, so would probably trigger a further share price rally.

Valuation-wise, BTS is undemanding—FY13/14 PEG of 1.0x—a steep discount to the regional mean of 3.3x.

Expect core earnings accretion from sale of net farebox revenue

BTS's planned sale of net farebox revenue to an Infrastructure Fund (BTSGIF) will generate core earnings accretion for the company over the next few years, we believe. The key drivers will be: 1) dividend income from its 33.33% holding in BTSGIF, 2) interest income from cash proceeds, 3) management fees paid by BTSGIF and 4) lower interest expenses (assuming that some of the proceeds are used to pay down loans). Our study (based on a net farebox revenue sales price of Bt60,000m which is the most likely scenario, in our view) indicates that BTS's core earnings would increase by 24% to Bt2,328m in FY13/14 and by 15% to Bt3,002m in FY14/15.

Extra gain from sale of net farebox revenue expected

The firm is likely to book an extra gain from selling net farebox revenue to BTSGIF. Based on the indicative selling price of Bt50,000-60,000m, we would expect BTS to book an extra gain of Bt8,000-18,000m (Bt0.67-1.50 per share) in FY13/14. The firm should be able to book an extra gain of up to Bt28,000m (Bt2.34 per share) if the selling price is Bt70,000 mn.

Scope for upside to target price

We have revisited our valuation method for BTS and we now think that the SOTP (sum-of-the parts) method is more appropriate than the DCF-derived method that we currently use, as VGI Global Media Plc (VGI; BTS holds 67.7%) is already listed on the SET and BTSGIF (BTS will hold 33.33%) is soon to be listed. Our scenario analysis (based on a SOTP valuation and a net farebox revenue sales price range of Bt50,000-70,000m) suggests 2-11percent scope for upside to our new end-March 2014 target price.