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Hong Kong MTR

Hong Kong MTR consortium extends right to operate Metro Trains Melbourne for another 10 years

Three times larger than MTR’s home network in Hong Kong, Metro Trains Melbourne is the company’s most profitable overseas rail project

PUBLISHED : Tuesday, 12 September, 2017, 5:59pm
UPDATED : Tuesday, 12 September, 2017, 10:24pm

A consortium led by Hong Kong’s rail service provider, MTR Corp, has extended its right to operate and maintain the metro system in Melbourne, Australia for up to 10 years from November.

The semi-privatised corporation said on Tuesday that the 60 per cent-owned subsidiary, Metro Trains Melbourne, which has run the service since 2009, would be allowed to continue for the next seven years with an option to extend for a further three.

With 869km of track in the Australian city, more than three times the amount that is in Hong Kong, Metro Trains is the most profitable rail project outside the MTR’s home market in the first half of this year.

MTR chief executive Lincoln Leong Kwok-kuen said the extension of operating rights underlined the improvement of metro services in Melbourne in the past eight years. Partners in Metro Trains Melbourne include engineer contractor, John Holland Group, and rail product provider, UGL Rail.

About a decade ago, MTR began expanding into Europe, mainland China and Australia, while new rail projects in Hong Kong struggled with cost overruns and delays in completion.

The Melbourne metro service is composed of 15 lines and 218 stations, but while the scale of the operation is larger than in Hong Kong, the Asian city is a lot busier with an average of 4.7 million passenger trips on a weekday to Melbourne’s 840,000.

DBS Vickers Hong Kong analyst Jeff Yau said the renewed contract to run the Melbourne rail services was good news.

“It’s positive to the MTR’s overseas business,” he said. “However, the investment return of the overseas rail business has been made up of about 5 per cent of the group’s underlying profit annually, which is still not significant.”

He expected MTR’s profits in 2019 to 2020 to be driven largely by property development income, such as the residential properties above Lohas Park station in Tseung Kwan O.

“The overseas rail business will do well to see recurring profits, but it will not be as strong as property income,” Yau said.

The Melbourne project generated HK$209 million in earnings before interest, tax, deprecation and amortisation (EBITDA) in the first half of this year, 12.90 per cent down year on year.

The Melbourne project was the most profitable compared with MTR’s other overseas rail service in London, Stockholm and Shenzhen, and accounted for 8 per cent of the EBITDA of mainland Chinese and international business in the first half of the year.