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Jake Van Der Kamp

'MTR helped limit the market's losses as the railway operator and property developer surged after Credit Suisse raised its price target and profit forecasts for the firm.'
SCMP, January 8
Iwish I had had that sort of power to summon the buyers when I was an investment analyst - 'Hey, fellas, MTR Corp, going up, know what I mean? Fill your boots' - and then see them all do it and push the price up.
I tried it from time to time, of course, but the invariable response came down to: 'You first, Jake. We'll watch.'
Mind you, I have my doubts as to whether it was just a Credit Suisse recommendation that has sent the MTR share price soaring again in recent trading. I am in fact somewhat surprised to see a largish investment bank think that institutional investors bother tracking this stock any longer.
They watched in mid-2005 as the government announced a forced merger with the Kowloon-Canton Railway Corp on terms that were clearly detrimental to minority shareholders and watched the share price seriously underperform the market for more than a year thereafter.
Just before a minority shareholder vote on the deal in October, however, they saw the share price jump sharply up and give them an opportunity to get out. I think most of them took that opportunity.
I think that what shares are nominally left in the market are held by retail punters and in government-friendly hands. I wonder in fact whether the recent activity in the stock represents only the final clearing out of the last non-government holders before a formal announcement that the company has been privatised again.
Despite what Credit Suisse thinks, there cannot be much in earnings prospects to push the stock up to record highs and make it outperform the Hang Seng Index by 50 per cent over the last two months.
In earnings terms it is a property company that runs a loss-making commuter railway on the side. Yes, it has plans to expand its rail network but in earnings terms this means nothing unless the government gives it more property on sweetheart terms to pay for the rail projects.
And, try as I might, I cannot remember any property deal that would send the price up quite so strongly. It is all definitely rather puzzling. Has something leaked?
I recognise that this has been declared a no-go area for the Securities and Future Commission but would MTR management perhaps care to comment?
Also well up against the market on Monday was CLP Holdings and in this case there can be no surprise about the reason.
Our two electricity utilities have finally come to an arrangement with the government for a new regulatory regime and it is clearly a better one for them than all the war talk might earlier have led us to believe.
The permissible return on investment in fixed assets will go down to a basic 9.9 per cent from the previous longstanding figure of 13.5 per cent but both will get extra earnings incentives for emissions control and renewable energy investment.
This is particularly welcome because earlier government proposals had envisioned penalising the utilities for investment in emissions control equipment. Yes, it's true, they really did. Someone has grown up obviously.
And a lower return rate was inevitable anyway. Aside from the fact that it was well signalled, the earlier 13.5 per cent was based on conditions in the early 1980s when the yield on Hong Kong dollar investments was much higher than it now is.
For evidence, just look at the 30-year chart of our best lending rate and the benchmark US dollar 10-year Treasury rate to which our long-term return rates are closely tied. A 9.9 per cent basic rate in the present environment is actually a better return than a 13.5 per cent rate in the early 1980s environment.
Thus it  was no surprise to see CLP buck the trend on the market when the news was announced. That still leaves us with the puzzle of the MTR, however.



Would management care to comment on the MTR puzzle?