MTR share beats Hang Seng Index by 5%

Still positive amidst weak property development segment.

According to Nomura, MTR share has outperformed Hang Seng Index by 5% YTD. The company delivered a solid set of FY12 results that beat expectations on both the property and railway fronts.

Here's more:

Underlying net profit declined 7% y-y to HKD9.8bn, dragged down by lower profits from property development.

That said, results were 11% and 9% ahead of our and consensus estimates, respectively, owing to a combination of factors that included higher-than-expected property profits, and lower-than-expected depreciation/finance expenses.

The recurring railway and rental income remained very solid as expected – recurring profits grew 13% y-y, with rentals from kiosks and investment properties enjoying double-digit positive reversions. 

Railways outside of HK, now 7% of total pre-tax recurring profits in FY12, also delivered 50% higher earnings thanks to Beijing and Shenzhen lines.

Full-year DPS of HKD0.79 (+4% y-y) is the same as our forecast and is in line with MTR’s progressive dividend policy.

We do not expect the Street to make major revisions to their NAVs or ratings until the outcome of FAM review is announced – MTR is aiming for a conclusion by the end of this month.

However, for property development earnings, management revealed that LOHAS Park Phase 3 is unlikely to be completed within 2013, meaning that although this project is still targeted to be launched for pre-sale this year, its profits will not be booked until 2014F on completion.

This delay in profit recognition (from 2013F to 2014F) is only a timing issue and should not affect MTR’s NAV or fair value, in our view.