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BTS Group Holdings

Concerns priced in; growth prospects intact

BTS Group Holdings Plc (BTS)

Investment thesis

The key messages from the analyst meeting reaffirmed our view of BTS's short- and long-term growth prospects. We think 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). 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.

Earnings growth expected for 4Q13/14

Despite the political unrest, we expect BTS's core earnings to expand both YoY and QoQ in 4Q13/14 (Jan-March 2014). The key drivers are: 1) a greater contribution by the mass transit business (YoY & QoQ), 2) a higher YoY contribution by the media business and 3) a normalized tax rate.

Ridership numbers have grown robustly in the year-to-date—total ridership hit an all-time high of 19.9m trips (up by 17% YoY and 15% MoM) in Jan with an average weekday ridership of 708,668 trips. Momentum was sustained through the first two weeks of Feb. However, VGI's numbers are expected to slip QoQ on low season and the ad spend recession. Moreover, the property unit's contribution is likely to weaken both YoY and QoQ on slower condo transference.

Political chaos & economic slowdown prompted FY13/14 target cut

Unlike the mass transit business which has benefited from the prevailing political chaos, BTS's media and property units have been negatively affected. The GDP slowdown is another negative factor. As 10MFY13/14 ridership growth was 9% YoY, the firm maintains its FY13/14 ridership growth target guidance at 7-10% YoY. In contrast, VGI has slashed its revenue growth target for FY13/14 to "not less than 10%" (with YoY growth of 20% in BTS-related media and a 5% in modern trade and office building media) from 30% growth previously. Furthermore, the property unit has deferred its target to transfer 100% of its condo units from March 2014 to December 2014.

Organic expansion to drive FY14/15 earnings growth

BTS's core earnings growth is expected to continue through FY14/15, driven by all key businesses. The mass transit business will be supported by a full operational year at the Wongwian Yai-Bang Wa extension—both ridership and O&M revenue—and a full year of higher fares. Meanwhile, VGI's earnings expansion will be led by a 16% increase in train capacity and the full-year effects of revenue from new products (Platform Truss LEDs, Platform Screen Doors, and E-Posters), we believe. Also, the deferring of condo transference from FY13/14 and additional sales of condo units should support the earnings of property unit in FY14/15.








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