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BTS Group Holdings

3Q13/14 earnings missed estimates; next quarter looks better

BTS Group Holdings Plc (BTS)

Below estimates

BTS posted a 3Q13/14 (Oct-Dec) net profit of Bt449m, down by 59% YoY and 53% QoQ (huge extra gains were booked in 3Q12/13 and 2Q13/14). Core earnings were also Bt449m, up 5% YoY but down 22% QoQ. The net profit was somewhat below our estimate and the consensus, due to a higher effective tax rate than expected.

Results highlights

The exceptionally high effective tax rate of 49% in 3Q13/14 (against 18% in 3Q12/13 and 28% in 2Q13/14) was the key factor behind the disappointing net profit. The one-time tax expense was related to a BTSC capital reduction in November 2013. On the operational front, YoY core earnings growth in 3Q13/14 was driven by improvements across all key businesses, while the QoQ core profit contraction was due to lower contributions by the media and property units. Total ridership rose by 7% YoY and 1% QoQ to 53.8m trips, while the average fare increased by 7% YoY and 1% QoQ to Bt26.80/trip.

VGI posted a net profit of Bt317m for 3Q13/14, up 21% YoY but down 3% QoQ. The property business reported YoY profit growth (but a QoQ decline). Another 131 condo units at Abstracts Phahonyothin Park transferred in 3Q13/14 (55 units in 3Q12/13 and 201 units in 2Q13/14).

Outlook

BTS's core earnings are expected to expand both YoY and QoQ in 4Q13/14 (Jan-March 2014), driven by a greater profit contribution by the mass transit business (YoY & QoQ), a higher YoY contribution by the media business and a normalized tax rate. However, VGI's numbers are expected to slip QoQ on low season and the ad spend recession. Moreover, the property unit's contribution will probably decline both YoY and QoQ on slower condo transference, given the prevailing political unrest.

What's changed?

We have cut our FY13/14 core profit forecast by 18% to Bt2,026m and our FY14/15 net profit projection by 7% to Bt2,681m to factor in: 1) weaker expected VGI earnings, 2) a lower condo unit transference assumption (to 657 units from 800 units) and 3) a higher effective tax rate assumption. Our end-March 2014 SOTP target price slips to Bt10 (from Bt10.80).

Recommendation

The market has already priced in slower media and property numbers and the risk of delays to the opening of tenders to manage new mass transit lines (tied to the prevailing political conflict), we believe. BTS's FY13/14 PEG ratio of 0.3x represents a steep discount to the Asian mean of 0.7x. Moreover, the announcement of committed dividend payments for FY13/14-15/16 (implying dividend yields ranging 6-8%) will support the stock price.






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