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Jing Yang

MTR Corp on Thursday reported robust earnings growth for the first half but analysts raised concerns over possible financial blows to the company as it braces for further project cost overruns.
Net profit increased 3.5 per cent year on year to HK$8.2 billion, with revenue up 3.8 per cent to HK$20.2 billion for the six months to June.
Recurring profit, which excludes property development gains, climbed 7.9 per cent to HK$4.5 billion.
MTR, the city’s dominant railway operator, announced further delays and cost rises in three railway projects.
The Kwon Tong Line extension, South Island Line and Sha tin to Central line are projected to incur a total of HK$4.27 billion in extra costs.
That is in addition to the HK$20.3 billion overshoot in the estimated costs for the Express Rail Link to Guangzhou and Shenzhen, in which MTR and the government, its largest shareholder, are at  odds over who will foot the bill.
“I’d like to highlight the facts that the Express Rail Link and %the Shatin to Central Link belong to the government. So the government is responsible for the costs. We are only the project manager.
“We will absorb additional costs ourselves for Kwon Tong Line extension and South Island Line,” chief executive Lincoln Leong Kwok-kuen told reporters.
“The additional costs will be capitalised on our balance sheet and will be subject to annual depreciation. Therefore actual impact on the profit or loss account will be contained on an annual basis,” Leong said.  
The government said earlier that it would not let taxpayers bear the costs of MTR’s performance in the express rail project management and that MTR should share the greatest responsibility for the delay.
Leong declined to offer updates on the negotiations with the government.
Analysts have expressed concerns that the issue will be an overhang on the financial and stock performance of one of the most conservative companies in the city.
Nomura analyst Benjamin Lo estimated that the financial impact on MTR will be HK$6.3 billion, or HK$1.10 per share, should the firm be asked to forgo the project management fee and bear future management costs in completing the project, scheduled for the third or fourth quarter of 2018.
MTR also faces short-term pressures to maintain its profit margin in domestic rail services as it wards off competition from other local transport companies.
 
Operating profit margins for rail transport dipped 1.6 per cent to 46.6 per cent owing  to the increase in staffing and salaries from  the opening of the West Island Line. Finance director Stephen Law said temporary margin pressures on new railway businesses is not unusual.
MTR is also on course to see a gap of at least one-and-a-half-years  in property development gains as sales for the next site will not be booked until 2017 at the earliest, said Jonas Kan, an analyst at Daiwa Capital Markets.
In the first half of this year, MTR saw its market share of  the city’s public transport grow to 48.5 per cent from 47 per cent a year ago. However, its share of  cross-border transport declined to 50.8 per cent from 52.1 per cent. 


Hong Kong subway operator posts strong interim profit growth 

MTR Corp property director David Tang Chi-fai, left, chief executive Lincoln Leong and  finance director Stephen Law Cheuk-kin at the results meeting. Photo: Nora Tam

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