MTR's net profit down 6% to HKD10.9b

LegCo approves Express Rail Link extra budget.

It has been noted that LegCo's approval for extra budget to support the Express Rail Link will likely boost MTRC's performance as it improves clarity on the HKD4.4/share special dividend, in Jefferies' view.

According to a research note from Jefferies, while reported net gearing of 11% is better than Jefferies' expectation, additional loan draw-down to finance the dividend payment in two tranches (2H16 and 2H17 as expected) should not lead to high leverage risk for MTRC. The stock could yield up to c15%.

MTRC's FY15 results are in line, said the report. MTRC reported HKD10.9bn underlying net profit, down 6% mainly due to lesser booking from property sales. Yet, recurring profit grew 7% yoy driven by healthy HK station commercial, improvement in mainland and international businesses and also steady growth in HK property rental and management.

Overall EBITDA margin stayed at c38% despite rising pressure on operating expenses. Company issued a final DPS of HKD0.81, up 1.3%, bringing the full-year DPS of HKD1.06 compared to HKD1.05 last year.

Here's more from Jefferies:

We cannot deny the impact from a weakened HK economy would affect MTR. Fares under FAM that are subject to review in 2017 should not bring more volatility than patronage in the near term.

As recurring profit accounted for over 80% of total underlying profit, resilient transport operation, station commercial and rental that mainly cater to daily consumption will continue to support the major income foundation. Meanwhile, other new lines including South Island Line (East) and Kwun Tong Line Extension will be completed in 2016 to provide an incremental revenue stream.

Apart from inventory, no new HK projects are for presale in near future. Tiara in Shenzhen has been 96% sold but profit booking will mostly take place in 2017, depending on unit hangover. Despite that, MTR has already tendered out seven development packages including LOHAS Park Package 10 in March. Altogether, 11,410 residential units will support future sales profit when they are sold and completed. Three more packages will be tendered out in FY16.

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