MTRC issues profit warning on $2.4b hit

Top News | Avery Chen 19 Jul 2019

The MTR Corporation yesterday issued a first profit warning since its listing in 2000, saying it will make provisions of HK$2.43 billion in the first half of this year.

That includes HK$2 billion for the troubled Shatin to Central Link project and HK$430 million for a joint venture in the United Kingdom.

The provisions are equivalent to about 52 percent of the consolidated profit from the underlying business for the first half last year, and 22 percent for 2018.

The railway operator said in order to make progress on the Shatin to Central Link project and to facilitate the opening of services on the Tuen Ma Line in the first quarter of 2020 the company will fund the costs, which are estimated at around HK$2 billion.

The additional outlays arise from construction problems at Hung Hom station and costs associated with the phased opening of the Tuen Ma Line.

The MTRC is also reserving its position on liability for the costs, saying that "there is no certainty that, ultimately, the entirety of this amount will need to be funded."

Also on the HK$2 billion, the corporation added: "This amount does not take into account any potential recovery from any other party."

But Stanley Chik, head of research at Bright Smart Securities, said there was a risk the provision of HK$2 billion could turn out to be inadequate. So he suggests investors keep a close watch on happenings concerning the Hung Hom situation.

Kenny Wen, a wealth management strategist at Everbright Sun Hung Kai, said the unexpected profit warning will have a negative impact on the MTRC's stock price in the short term, given that its shares have risen 37.5 percent this year.

But from a middle-term perspective, he added, a short-term decline in the stock price might provide buying opportunities for investors. That is because the provision is a non-recurring expense and it will not affect the corporation's mid- and long-term activities, including transport operations and property development.

He added that one of the drivers of share price growth since early June has been that some institutional investors have started to buy the stock after big investment houses said the unrealized property sales of MTRC will be above HK$50 billion within the next few years. That could mean significant revenue growth.

He said investors could consider buying the stock in stages if the price falls below HK$53. Shares of MTRC were up 0.09 percent to HK$55.7 yesterday.

The MTRC expects costs relating to the Hung Hom problems will reduce cash flows, but the board proposes to maintain its current progressive ordinary dividend policy.

In the UK, the MTRC's provision of HK$430 million is in relation to First MTR South Western Trains, a joint venture in which it holds a 30 percent stake, for the first six months this year.

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