UBS expects MTR Corporation's stock price to respond positively to the bidding results for the first phase of the Tuen Mun Area 16 Station, but remains cautious about the long-term outlook

UBS research report indicates that MTR Corporation (00066.HK) announced that the contract for the first phase of the property development project at Tuen Mun Area 16 was awarded to Sun Hung Kai Properties (00016.HK). The total gross floor area of the project is 601,000 square feet, expected to provide approximately 1,280 residential units. Sun Hung Kai revealed a total investment amount of HKD 6 billion, which translates to a land price of about HKD 9,983 per square foot. Assuming the average selling price of the project can reach the current level of the same district project, Long Mun, which is HKD 12,750 per square foot, the overall development gross profit margin is about 22%. After sharing profits with MTR, Sun Hung Kai's actual development profit margin is about 15%.

The bank estimates the overall land cost to be about HKD 4,300 per square foot, which is 12% higher than the price of the same district project acquired by Sino Land (00083.HK) in August, but still 23% lower than the initial estimate, reflecting that the commercial returns of the Tuen Mun South Extension project are still lower than initially expected.

The bank expects MTR's stock price to respond positively to the results of this tender, but remains cautious about the company's long-term prospects due to the substantial capital expenditure requirements and continuously rising interest expenses brought by new railway projects, as well as the relatively low attractiveness of land reserves outside the Tuen Mun South Line (such as Tung Chung East, Little Oysters Bay, and North City). The bank currently sets a target price of HKD 24 for MTR and maintains a "Sell" rating