MTR posts 8 per cent fall in recurring profit on higher costs from newly opened rail lines
MTR Corp, Hong Kong’s sole operator of mass transit railways and a major property developer, posted an 8 per cent year-on-year decline in interim profit from recurring operations on the back of higher costs from new subway lines opened late last year.
Net profit from recurring operations – transportation, commercial space letting, property rental and management – amounted to HK$4.48 billion for the first six months, down from HK$4.87 billion in the same period of last year.
The profit is in line with an analyst’s estimate of HK$4.5 billion according to Bloomberg, and with the full-year average estimate of HK$9.33 billion among 10 analysts polled.
When profit from property development and revaluation gains are thrown in, net profit of the firm which commands nearly half the city’s franchised public transport market, grew 46.1 per cent year-on-year to HK$7.48 billion.
“The underlying profit decline was due to higher depreciation and interest expenses after the new South Island line and Kwun Tong line extension line opened in the fourth quarter of last year,” chief executive Lincoln Leong Kwok-kuen told reporters after the firm announced the results in a filing to Hong Kong’s bourse on Thursday.
An interim dividend of 25 HK cents per share was proposed, the same as last year.
Property development profit came to HK$1.37 billion, up from HK$207 million in the year earlier period, while investment property revaluation gains came to HK$1.63 billion – up from HK$48 million.
First-half total revenue of the firm 75 per cent-owned by the government,was up 40.8 per cent year-on-year to HK$30 billion, thanks mostly to the booking of property sales from a Shenzhen project.
The majority of the project’s sales have already been booked in the first-half.
Hong Kong transport profit fell 19 per cent from a year ago to account for 15.4 per cent of total earnings before taxes and interest, while earnings from station commercial businesses rose 3.8 per cent to take up 25.7 per cent of the total. Property rental and management saw profit climb 4.6 per cent to make up 24.3 per cent of the total.
Mainland property sales booked HK$2.19 billion of profit, accounting for 25.6 per cent of the total. The remainder came mostly from Hong Kong property development.
Although first-half property rental revenue rose 3.5 per cent, the average rent of renewed leases at MTR Corp’s shopping malls fell 2.2 per cent, which Leong attributed to Hong Kong’s weak retail sales.
“The economic environment may continue to affect our operations,” he said, noting the firm’s advertising revenue also fell 3.8 per cent.
Having been criticised for frequent rail service disruptions caused by ageing infrastructure, Leong said MTR will “substantially raise” its expenditure on infrastructure upgrades in the future, from HK$8 billion last year.
The company has only tendered two new projects for development with partners along its railways in the first half of the year – out of seven that were planned. Addressing this, property director David Tang said MTR Corp’s tender activities have taken into account demand and new supply from redevelopment projects by other developers in both the private and public sector.
Projects under development by MTR will provide over 30,000 units in the future, of which over 3,000 will come from the two projects tendered so far this year, as well as one more expected to be tendered soon, he added.
MTR shares finished Thursday 0.5 per cent higher at HK$46.4, outperforming the Hang Seng index, which fell 1.1 per cent.