MTR bent on growing recurring businesses

As well as China and overseas ventures.

In reaction to observations about the MTR’s diminishing landbank in HK, it has been noted that its management agrees that HK’s landbank could become smaller in the long term.

According to a research note from Nomura, hence, MTR is focused on growing the recurring businesses, i.e. new railways in HK - target of more than 50% market share from current 47%; and more station commercial and investment property rents.

Further, MRT is also focused on growing the China/overseas businesses, which are consistent with Nomura's long-term investment thesis.

Here's more from Nomura:

Domestic patronage recorded double-digit growth on the first few days of Occupy

Central (vs. patronage before the event), and has now trended down to high single-digit growth as of the past few days.

Further growth in investment property rentals in 2017F (Tsing Yi’s lorry park) and 2020F (Tai Wai Station commercial property) (both not factored in our model yet).

Booking of property development profits – Austin site C likely in 2014F; Austin site D and LOHAS Park Phase-3 likely in 2015F (both are in line with our estimates).

Updates on HK new railways - Same as previously guided during the August interim results, i.e., SILE, KTLE in 2016F (delayed from 2015F). Express Rail Link in 2017F.

MTR is still in negotiations with the HK government regarding the HKD6.5bn cost overrun at Express Rail Link.

Dividend policy is progressive, i.e., to grow DPS on an absolute level (and not based on payout ratio). We forecast 3.5%/4.0% dividend yield in 15F/16F, with upside potential if MTR is to become even more generous following its capex cycle peaking in HK.