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BTS Group Holdings

To outperform market from mass transit bidding BUY



BTS Group Holdings Plc (BTS)

The media business has recovered since 1Q14/15, while the mass

transit business would grow since 2Q14/15 onward when a new

university semester starts, boosting 2Q14/15-3Q14/15 profit.

Moreover, there is also a positive factor from the news about a

share repurchase and the extension line bidding. Reiterate BUY.

- Better media business boosts 1Q14/15 profit

1Q14/15 net profit (ended June 2014) was B650m. Excluding the capital gain of

B83m, the normalized profit was B567m, growing 37%qoq. Selling and

administrative expense decreased 23.6%qoq due to the high base in 4Q13/14

from bonus expense. Gross profit margin also increased from 60% in 4Q13/14

to 63% in this quarter, thanks to 1.0%qoq growth in the revenue base,

particularly revenue from the media business (36% of total revenue) that

recovered 19%qoq after the political unrest ended, resulting in an economy of

scale. The core business, mass transit (interest revenue + share of profit from

BTSGIF + train operation & maintenance revenue), and the property business

stayed flat qoq.

- Profit to improve in 2Q and 3Q14/15

1Q14/15 normalized profit accounts for 24% of our full-year forecast. Yet, the

normalized profit is projected to improve in 2Q14/15-3Q14/15, led by the media

business that would fully rebound. For the mass transit business, ridership in

2Q14/15 would be able to grow qoq after falling 10%qoq in 1Q14/15 as a result

of the high base in 4Q13/14 where there was a benefit from the closure of roads

during the political rally. Passenger volume would increase again when a new

university semester starts in August and continue growing in 3Q14/15. The

property business would stabilize in the rest of the year; there are around 120

units of Abstract Phahonyothin Park waiting for transfer (42 units transferred in

1Q14/15). Overall, we maintain our forecast for FY2014/15 normalized profit of

B2.3bn or the growth of 15%, but the net profit would decrease because there

was non-recurring profit last year.

- Share repurchase + extension line bidding boosts share price

Due to a more positive outlook toward VGI after it has acquired 24.9percent stake in

MACO (BTS holds 65percent stake in VGI), we revise up fair value of BTS to B12,

implying a 30.4% upside. In the short term, there is positive sentiment from the

share repurchase program and the news about extension line bidding in early

2015 (we already included the value of B3.0/share from the extension line in the

fair value). Therefore, BUY recommendation is reiterated.


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