The Nation



BTS Group Holdings

Taking chance abroad. Good to speculate BUY

BTS Group Holdings Plc (BTS)

- BTS forms consortium to bid for Beijing subway

BTS and CITIC Construction (CITIC), a Chiness state enterprise (owning financial

institutions, insurance and contraction business) have jointly formed a consortium

(BTS-CITIC; BTS holding 49percent stake and CITIC holding 51%) to enter the bidding for

the concession to operate the Beijing Subway Line 16 Franchise Project (17 lines have

been operated, running 50 km in far-western Beijing from Beianhe to Wanping,

totaling 29 stations). The winning bidder is required to invest in both the electric train

system and the mechanical systems (trains, signalling systems and fare-collection

systems) at the total of CNY15bn (B75bn) and will be paid by passenger fare revenue

(as well as state subsidy if fare revenue is lower than the forecast) and 30-year

commercial right on the subway line (expected to commence operation from 2018

on). BTS-CITIC has already submitted the bidding envelope. The result would be

announced in next three months. All the civil works of the project will be responsible

by Chinese government.

- BTS may grow abroad

There are three bidders in this auction: 1) BTS-CITIC, 2) Beijing Mass Transit Railway

Operation Corporation Limited (Beijing’s state enterprise) and 3) Beijing MTR

Corporation (a joint venture of a Chiness state enterprise and MTR, railway

entrepreneur in Hong Kong). Beijing Mass Transit Railway Operation Corporation

Limited has already operated 14 railways, and Beijing MTR Corporation has operated

three railways lines in Beijing, so BTS-CITIC is not likely to win the auction. Still, we

are optimistic that BTS would benefit from the auction: 1) BTS would have more

opportunity to expand its business abroad, so it would not have to rely solely on

domestic business (auction for skytrain line extension might be delayed as a result of

the political turmoil). 2) As CITIC is a large Chinese state enterprise that owns a

variety of businesses, it might expand BTS's businesses in the future.

- High upside and dividend yield even not including added value.


If BTS-CITIC wins the bid, B0.5/share added value would be included in the fair value

(under the assumption that 15% expected rate of return from B75bn project

investment grants BTS-CITIC the return of B11bn, and BTS gains B5.5bn return as

BTS holds 49percent stake of BTS-CITIC). We maintain our earnings forecast and fair value

until the bidding result comes out. It is advisable to speculate on this factor, as the

stock market is likely to have a positive outlook on BTS’s opportunity to expand

business abroad. BTS’s fair value (not including added value) implies 45% upside and

6% dividend yield. We recommend "BUY".

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