Hong Kong’s rail operator denied it was becoming a property developer after it announced on Thursday a 64 per cent rise in net profit to hit HK$16.8 billion (US$2.1 billion) for 2017, thanks to bumper earnings from its property portfolio.
Less than one-third of the MTR Corporation’s HK$55.44 billion in revenue last year came from its transport operations in Hong Kong, while income from its property developments in mainland China jumped five times during the period.
The rail giant dismissed concerns that it was becoming too focused on property development. But it insisted it would continue to rely on the “rail-and-property” model to sustain its expanding operations and increased maintenance costs.
As compensation for the cost of building railway networks, the government grants the MTR Corporation land development rights along its rail lines, stations and depots – an increasingly lucrative business in recent years amid a red-hot property market.
Underlying profits for the company rose 11.3 per cent in 2017 to HK$10.5 billion, while revenue jumped 22.7 per cent to HK$55.44 billion on the back of its property portfolio.
Four residential sites at Ho Man Tin, Lohas Park, Wong Chuk Hang and Yau Tong stations will be progressively rolled out for tender this year, providing a total of 4,200 units.
The company’s stellar business performance saw its final dividend rise 6 per cent to HK$0.87 per share, taking the full-year shareholder payout of 4.7 per cent to HK$1.12.
But it was a mixed bag for the corporation’s transport operations last year. While revenue rose 3.1 per cent to HK$18.2 billion, operating profit before tax and interest plunged 35.6 per cent to only HK$1.66 billion.
CEO Lincoln Leong Kwok-kuen said the opening of the South Island Line and the Kwun Tong Line extension in late 2016 drove up depreciation and amortisation charges.
“Both those lines use our time-tested rail and property model, so the property development on top of the depot and on top of the stations for those lines will, over time, contribute to the financial viability of the lines,” he said.
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Lawmaker Chan Han-pan insisted the company was in a solid financial position to issue more rebates to customers.
MTR fares are adjusted annually in June under a fare mechanism linked to inflation and wages for the transport sector. The mechanism also stipulates that a certain amount of profits should be returned to passengers in the form of fare rebates.
“The current 3 per cent discount should be made a year-long measure, as opposed to being offered only six months each year since the MTR Corporation is earning huge profits,” Chan said.
Meanwhile, Leong did not specify if – or when – an operating agreement would be finalised with the government to give the MTR the rights to run the Guangzhou-Shenzhen-Hong Kong Express Rail Link, slated to open by the third quarter of this year.
“We have not been given the operating rights yet … We have been in discussions for a while now with the government,” he said.
Leong also said he saw no reason to push back the targeted opening date of the Sha Tin-Central Link, after two wartime bombs were discovered at its construction site in January, forcing work suspensions.
Dubbed one of the world’s most expensive railways for its length, the first phase of the 17km route connecting Admiralty to Kowloon and the New Territories is expected to open in 2019, boosting the MTR’s plans to further increase capacity on an already saturated rail network.