Left Brain Right B - the DBS Vickers Securities Equities Research

Regional Equity Strategy 4Q 2009
MTR Corporation
Bloomberg: 66 HK | Reuters: 0066.HK
BUY HK$27.35 HSI: 21,769
Price Target : 12-Month HK$30.65
Potential Catalyst: Favourable land supply, project tender, significant
network expansion
Analyst
Jeff Yau CFA· (852) 2820 4912 ·
Jeff_yau@hk.dbsvickers.com
Ken Chen · (852) 2863 8923 ·
ken_chen@hk.dbsvickers.com
Price Relative
HK$
36.80
31.80
26.80
21.80
16.80
11.80
2005 2006 2007 2008
Relative
Index
MTR (LHS) Relative HSI INDEX (RHS)
Forecasts and Valuation
FY Dec (HK$m) 2007A 2008A 2009F 2010F
Turnover 10,690 17,628 17,747 18,125
EBITDA 5,912 9,325 9,257 9,542
Pre-tax Profit 10,254 9,173 8,432 9,292
Underlying Profit * 8,571 8,185 7,068 7,787
EPS (HK$) 1.54 1.45 1.25 1.36
EPS Gth (%) 42.1 (5.5) (14.1) 9.3
DPS (HK$) 0.45 0.48 0.48 0.48
PE (X) 17.8 18.8 21.9 20.1
P/Cash Flow (X) 25.5 16.2 17.0 16.2
EV/EBITDA (X) 31.0 19.6 19.8 19.2
Net Div Yield (%) 1.6 1.8 1.8 1.8
Net Debt/Equity (X) 0.4 0.3 0.2 0.2
ROAE (%) 10.2 8.7 7.0 7.4
NAV (HK$) 30.0 31.9
Disc. To NAV (%) -9% -14%
Earnings Rev (%) Nil Nil
Consensus EPS (HK$) 1.23 1.30
209
189
169
149
129
109
* Excluding fair value change on investment properties
ICB Industry : Consumer services
ICB Sector : Travel & Leisure
Principal Business: Operate pre-dominantly a rail-based
transportation system in HK with exposure to residential and
commercial markets
89
69
Defensive growth stock
• Network expansion to boost railway earnings, it
had been resilient amid the economic downturn
• Large land bank to drive development earnings,
which are secured in the near term
• Valuation remains attractive; Maintain BUY
Railway earnings – “Defensive growth”. Patronage of
domestic and cross boundary services was stable YTD
despite a slower local economy and swine flu. The drop in
Airport Express passenger volume has moderated since
August. These imply resilient fare revenue. Significant
network expansion in the coming decade should widen its
catchment area, and hence, competitive edge over other
public transport operators. This should cement its market
dominance and provide room for long-term railway
earnings growth.
Secured near-term development earnings. In 1H09,
MTRC recognized HK$2.15bn property development
earnings, mainly relating to provision write-back for The
Palazzo and The Capitol and final profit split for The
HarbourSide. Lake Silver, which has been substantially sold,
should take centre stage in 2H09. Profit sharing of Le
Prestige, based on “sharing in kind” will be accounted for
upon project completion either in late 2009 or early 2010.
Profits from these two projects, which represent the bulk of
near-term development profits, are well secured.
Sizeable land reserve to support growth. Armed with a
large development land bank mainly for residential use,
MTRC will be a prime beneficiary of the government’s
favourable land policy. With an improving balance sheet, it
can afford to exploit the potential of its future property
projects by increasing capital contribution in return for
higher profit share.
Attractively valued. The stock is now trading at 9%
discount to our appraised current NAV. This remains
attractive given its defensive railway earnings and long-term
growth prospects. In the next six months, MTRC plans to
offer Kowloon Southern Link Sites C&D for tender. If it
secures favourable terms, there could be upside to the stock.
We re-iterate our BUY call and HK$30.65 target price.
At A Glance
Issued Capital (m shrs) 5,713
Mkt Cap (HK$m/US$m) 156,239 / 20,159
Major Shareholders (%)
The Financial Secretary Incorporated 76.75
Free Float (%) 23.25
Avg Daily Volume (m shrs) 4.3
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Refer to important disclosures at the end of this report
ed-SGC / sa- RM