Viewpoint Network The fifth wave of the new crown epidemic is raging, which has adversely affected Hong Kong’s local train operation, station business and property leasing business. The passenger volume of MTR’s Hong Kong passenger services fell to the lowest level since the outbreak of the epidemic in February and March 2022, extending the operating loss of the train service to HK$4.7 billion.
However, property development profits of more than HK$10 billion supported MTR’s profit growth last year.
After the three-year epidemic, the MTR Corporation held a physical annual performance conference on March 9. The management included Jin Zepei, Chief Executive Officer, Xu Lianghua, Chief Financial Officer, Yang Meizhen, Director of Hong Kong Passenger Services, Tang Zhihui, Director of Property and International Business, Project and Tang Huihao, director of engineering development, Li Jiarun, director of vehicle affairs, and Cai Shaomian, director of corporate affairs and brand, reported on the 2022 performance.
As of the end of December last year, the total revenue of MTR rose by 1.29% year-on-year to HK$47.812 billion; the profit attributable to shareholders increased by 2.87% to HK$9.827 billion, and the profit per share was HK$1.59. The final dividend decreased by 12.74% year-on-year To 89 Hong Kong cents, but the annual dividend is still 3.15% higher to 1.31 Hong Kong dollars.
HSBC Global Research pointed out that MTR’s performance last year was better than expected, and its annual dividend increased by 3%. It is expected that this year’s profit will improve.
Citigroup said that the MTR management emphasized the maintenance of a gradual dividend policy, and it is expected that the company’s future dividends will continue to increase. It maintains its “buy” rating on MTR and its target price of HK$51 remains unchanged.
The bank believes that MTR is a long-term defensive stock, providing stable growth in profits and dividends. Hong Kong’s transportation operations are expected to gradually resume, and Hong Kong’s property development business is also entering a harvest period. It is expected that more than 20 billion Hong Kong dollars will be recorded in the next two years.
In fact, MTR’s performance last year was entirely supported by property sales with a profit of more than 10 billion Hong Kong dollars. According to Guandian New Media’s review of MTR’s performance announcements, during the period, Hong Kong’s property development recorded a profit of 10.413 billion Hong Kong dollars after tax, mainly from A total of 2,293 units of income from LP10, Jinhuan and Yanghai were recorded.
During the year, a number of property development projects continued to be pre-sold. As of the end of last year, 78% of the units in “Jinhuan”, 83% of the units in Yanghai and 1089% of the units in LP have been sold; Kaibafeng I and Kaibafeng II will be launched for pre-sale in June and July 2022 respectively. By the end of the year, 79% and 22% of the units had been sold respectively; at the same time, the pre-sale agreement for Phase 1A and 1B of INONE and Phase 4A and Phase 4B of Phase 4 on the South Coast of Hong Kong Island have been obtained.
Jin Zepei pointed out at the press conference that it is expected that in the next 12 months or so, there will be bidding for the first and second phases of the Xiaohowan project and the first phase of the residential project at Tung Chung East Station. The three projects will provide a total of about 4,530 residential units . In addition, MTR also intends to invite tenders for the commercial project of Tung Chung East Station.
In fact, MTR received a total of three tender documents for the first phase of Siu Ho Wan in February this year, but because none of the tender documents met the minimum requirements of MTR, the bid was finally rejected. Deng Zhihui pointed out that he will closely observe the market environment and is currently evaluating the bidding arrangement, and plans to re-tender within this year.
Haitong International pointed out in the report that even though the first phase of Siu Ho Wan’s first tender failed, the recent active residential property market in Hong Kong and the rebound in property prices may attract developers’ interest.
In terms of investment properties, the profit before interest and tax was HK$3.8 billion last year, a year-on-year decrease of 6.1%. This year, the MTR will also launch “The Wai Wai Square” in Tai Wai and “THES OUTHSIDE”, a shopping mall on the south coast of Hong Kong Island, to increase the rental portfolio. Deng Zhihui pointed out that since the lifting of the mask order and customs clearance, the flow of people in its shopping malls has increased significantly, and he is cautiously optimistic about the market outlook.
Railway ticketing income is the main source of stable income for MTR. According to the performance announcement, its Hong Kong railway business recorded a loss before interest and tax of HK$4.733 billion, an increase of 11.1% year-on-year, offsetting the profit before interest and tax of station business of HK$2.27 billion After that, the loss before interest and tax of the overall passenger transport service in Hong Kong was 2.463 billion Hong Kong dollars.
Regarding the total passenger volume of local railway services for the whole year, which fell 6.1% year-on-year to 1.335 billion, Jin Zepei said that after customs clearance at the beginning of this year, the MTR passenger flow has gradually improved, and the local passenger flow has returned to more than 90% before the epidemic. As of the end of February, The basic momentum is good. As for the transit passenger service, it has recovered to 50% of the pre-epidemic level by the end of February, and the passenger volume in March is still rising.
As Jin Zepei pointed out, MTR’s railway-plus-property model can allow the railway to continue to operate at a loss, and even provided passengers with 2 billion Hong Kong dollars in ticket discounts throughout last year.
“The MTR does not need to propose a fare increase like other cities, and even needs to be subsidized by the government.” Jin Zepei pointed out that the fare adjustment mechanism is being reviewed. The fare adjustment mechanism is open, objective and predictable. During the period of 3 years, there was no The ticket price will be raised, and the fare will be lowered in another year. It is expected that the fare adjustment mechanism will have a review result in the middle of this year.
The MTR Corporation has served Hong Kong for 45 years until next year. Jin Zepei pointed out that the company will continue to invest in, improve and update existing railway assets, and will also invest in the construction of new railway projects to match the future development of Hong Kong. In the next three years, the renewal of railway assets now requires an average capital expenditure of over 10 billion Hong Kong dollars per year, and annual recurrent maintenance will exceed 5 billion Hong Kong dollars.
It is understood that in the next 10 years, MTR will invest more than 100 billion Hong Kong dollars to promote the new railway project and the Siu Ho Wan project in the “Railway Development Strategy 2014”. Construction of the Tung Chung Line Extension, East Rail Line Kwu Tung Station, Siu Ho Wan Station and Tuen Mun South Extension is expected to start this year. The company will also cooperate with the government’s “Northern Metropolitan Development Strategy” and the three strategic railways in the 2022 Policy Address to further expand the railway network and promote sustainable urban development.
As of the end of December last year, MTR’s net gearing ratio was 23.3%, an increase of 5.2 percentage points from 18.1% at the end of 2021, mainly due to the increase in net debt due to the payment of the land price for the Siu Ho Wan project.
Chief Financial Officer Xu Lianghua said that in response to the interest rate hike environment, they also classified 70% of the debt as fixed-rate liabilities to reduce the impact of changes in interest rates.
The following is the Q&A transcript of MTR Corporation’s 2022 annual results press conference:
On-site question: Customs clearance in the Mainland and Hong Kong, the flow of people has increased, what is the expected performance this year? When will it return to pre-pandemic levels? In addition, will the price of the Siu Ho Wan project be lowered in the future?
Jin Zepei:Since the customs clearance at the beginning of the year, we have seen that the passenger flow has gradually improved. The local passenger flow has returned to 90% of the pre-epidemic level, while the cross-border passenger flow includes those who settled in Lok Ma Chau and the high-speed rail passenger flow. In addition, the passenger flow of the Airport Express has returned to before the epidemic at the end of the month. About 50% is already slowly increasing, and the basic momentum is quite good.
Yang Meizhen:The demand including Luohu Lok Ma Chau and the high-speed rail is also slowly rising, reaching 50% at the end of the month, and it is also continuing to rise in March.
On-site business, including advertising revenue, or store business, is also slowly recovering, and we are also optimistic that the business will gradually improve.
Tang Zhihui:The Siu Ho Wan project is conducting research and paying close attention to the environment of the big market. We have also evaluated the tendering arrangements and now plan to invite tenders again within this year.
On-site question: How many units are involved in the new projects planned to be launched this year? As for rent collection, the market will recover this year, will there be any adjustments in recruitment?
Tang Zhihui:We plan to invite tenders for the property development projects of Phase 1 and Phase 2 of Siu Ho Wan and Phase 1 of Tung Chung East Station in the next 12 months or so, with a total of more than 4,500 units.
As for the renting issue, with the opening of each gate and the lifting of the mask order, the flow of people on site is more than before.
MTR shopping malls are available in different sectors, whether they are high-end, regional or relatively ordinary shopping malls. Now it is difficult to predict what will happen in the new environment and the recovery of the tourism industry, but I remain optimistic manner.
Now we see that most of the businesses of the tenants have improved greatly, and the occupancy rate of the shopping mall has reached 100%. There may be 1-2 stores in the entire portfolio that have not been rented out, so it is optimistic.
On-site question: Regarding the Octopus National Pass card plan, it may be launched in the next quarter. What is the current situation?
Yang Meizhen:The Octopus National Pass card product will be available in 320 cities, including buses and subways. This project was developed together with the mainland transportation authorities and is expected to be launched in the first half of this year.
On-site question: Two trains derailed at the end of last year. The government and MTR also set up a team to review the asset management and maintenance insurance system. How is the review progress now?
Jin Zepei:In the operation and maintenance of railways, we attach great importance to the maintenance and investment renewal of railway assets. For example, the resources used for daily maintenance every year exceed HK$5 billion, and the capital investment in the next few years will exceed HK$10 billion a year, totaling 15 billion Hong Kong dollars are invested in maintenance, improvement, renewal or enhancement of my assets.
Last year, 2.5 million trains (including light rail and heavy rail) traveled, and most of the journeys were smooth. Even so, we still want to keep improving, so we fully participate in the review of asset management, hoping to do better.
The current plan is to complete the asset management review within 6 months.
