The MTR’s FY14 underlying net profit of HKD11,571m, up 34.5% y-y, was in line with Nomura’s forecast and 7% ahead of consensus.
According to a research note from Nomura, this is thanks to solid domestic railway (EBITDA +4%), mid-teens kiosk rental reversions, and a recovery in property development profits (from Austin Station project).
Meanwhile, while FY14 results beat Nomura’s and consensus estimates on both net profits and dividends, 2015F outlook also looks very solid.
Here’s more from Nomura:
Domestic railway – MTR’s HK railway business will benefit from the first full-year operation of the newly opened West Island Line, which we estimate to add an extra 4% to domestic rail patronage. In addition, we also project an average fare increase of 4.5% in June 2015F based on latest trends in inflation and wages.
Mass retail rental reversions slower but should remain solid – we expect kiosks to register low-teens rental reversion in 2015F (from mid-to-high teens in 2014), while mass retail rents (from MTR’s various suburban shopping malls) to record mid-to-high-single-digit rental reversion in 2015F (from 13% in 2014).
This has reflected a general retail spending slowdown, but MTR’s retail rents should be more resilient given its tenant mix (more mid-market and mass brands) as well as a lower reliance on mainland Chinese tourists.
Profits from China and overseas projects including railway associates rose 15.3% y-y to HKD611m (see Figs 7 & 8 for details). MTR continues its overseas expansion with latest wins in Beijing (Metro Line 16), London (Crossrail), and Sydney (North West Rail Link). We expect further new concessions to be potentially awarded to MTR during 2015F in locations where MTR already has a presence, eg. Shenzhen and Melbourne.
Property development profits to remain stable – following 2013 when profit of HKD1,163mn hit the lowest since listing, we have already seen a recovery in 2014 (to HKD3,547mn).
We estimate stable profits in the next two years with profit-booking from LOHAS Park Phase 3 (sales to start in due course) in 2015F and Shenzhen Tiara project (pre-sale of phase 1 in 1H15F) in 2016F. MTR also plans to tender out two or three packages in LOHAS Park between now and year-end.