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.