The article "After the Performance" summarizes the latest target prices and views of major banks following MTR Corporation's earnings announcement

MTR Corporation (00066.HK) opened down 0.69% this morning (13th), with increased selling pressure in the early session, dipping to a low of HKD 32.08, a decline of 7.3%. It is currently reported at HKD 32.28, down 6.8%, with a transaction volume of HKD 328 million. Bank of America Securities indicated that MTR's core profit last year fell 4% year-on-year, in line with expectations, with a maintained dividend of HKD 1.31 per share. Recurring earnings decreased by 21.6% to HKD 5.6 billion, but excluding one-time unamortized cinema rent reductions and impairment of Line 1 in Hangzhou, the decline was only in the single digits. Although MTR is expected to benefit from the upward cycle of the Hong Kong property market, its substantial railway capital expenditure plan limits short-term dividend upside. The bank also expects that the profit margin of Hong Kong's railway business will continue to be under pressure in the fiscal year 2026, with management estimating future capital expenditures to be HKD 82.6 billion over the next three years, of which HKD 30 billion will be used for new railway projects. The bank noted that MTR is currently valued at a 23% premium to its net asset value forecast, deeming it unattractive, and maintains a "underperform" rating with a target price of HKD 27. Citi also pointed out that MTR's valuation has a 1% premium to its forecasted net asset value per share (HKD 34.2), compared to an average discount of 16%.

MTR announced its full-year results for the year ending December last year after the market closed yesterday (12th), with a revenue of HKD 55.465 billion, a year-on-year decrease of 7.6%. Net profit was HKD 14.677 billion, down 6.9% year-on-year; earnings per share were HKD 2.36. A final dividend of HKD 0.89 was declared, the same as the previous year. The total ordinary dividend for the year was HKD 1.31 per share, the same as in 2024.

During the period, profits from property development recorded HKD 11.084 billion, an increase of 8% year-on-year. MTR's Executive Director - Property and International Business, Deng Zhihui, stated that MTR will plan well, with many property development projects in the future, and will push for land tenders as the situation dictates. It is expected that MTR will continue to push for the second phase of the Kam Sheung Road Station and the second phase of Tuen Mun District 16 tender in the next 12 months. Last year, the new rental income from MTR's shopping malls fell by 9.5%, due to MTR providing rental assistance to merchants. Excluding this, the overall rental performance was close to the market average. The group indicated that it signed a project agreement with the government for the Northern Link (Part 1) last July. The company is actively negotiating with the government to finalize the signing of the project agreement for Part 2.

【Post-earnings stock price drop worries about capital expenditure】

Citi stated that the Hong Kong residential market is expected to bottom out in 2025, and property prices will enter an upward cycle, with new sales volumes continuing to grow. The bank believes this will increase developers' interest in MTR's land tenders. However, due to MTR's need to bear substantial railway capital expenditures in the coming years, its leverage ratio will continue to rise, and dividends are likely to remain unchanged in the foreseeable future. Furthermore, MTR's stock price is currently only at a 13% discount to net assets, which is more expensive compared to other conglomerates like Swire (43% discount) and Jardine Matheson (29% discount). Therefore, the bank maintains a "sell" rating on MTR but raises the target price from HKD 24.5 to HKD 30 JP Morgan stated that MTR Corporation's transportation business recovery last year was slower than expected, with local passenger volume stagnating, and station commercial rental renewals remaining negative, at -8.5% last year (projected at -9.8% for 2024). The profits of joint ventures declined, and capital expenditures remained high. The bank indicated that the capital expenditure for the second phase of the Northern Link is unclear, with MTR management expecting capital expenditures of HKD 82.6 billion from 2026 to 2028, of which approximately 50% (HKD 41.6 billion) will be used for Hong Kong railway maintenance, 37% (HKD 30.4 billion) for new railway projects in Hong Kong, 11% (HKD 9.1 billion) for Hong Kong properties, and 2% (HKD 1.5 billion) for investments in mainland China and overseas. However, the three-year capital expenditure guidance does not include a clear expenditure plan for the second phase of the Northern Link, which is likely to fall outside the current planning period.

--------------------------------------------------

The table below lists the investment ratings and target prices for MTR Corporation (00066.HK) from five brokerages:

Brokerage│Investment Rating│Target Price

Morgan Stanley│Overweight│HKD 30

Citi│Sell│HKD 24.5->30

JP Morgan│Neutral│HKD 29

Bank of America Securities│Underperform│HKD 27

Citi│Hold│HKD 27

Brokerage│Viewpoint

Morgan Stanley│Property profit growth exceeded expectations, dividend payout ratio met expectations, new mall rental rates fell 9.5%, performance was not ideal.

Citi│Debt ratio may continue to rise in the coming years, expecting dividends to remain unchanged.

JP Morgan│Last year's fiscal performance and recurring profits met expectations, with slow recovery in transportation operations and positive performance in property development.

Bank of America Securities│Expecting frozen ticket prices to impact profits, limited room for increased dividends, and a 23% premium on net asset value lacks attractiveness.

Citi│Recurring profits in the second half of last year decreased by 29% year-on-year, exceeding expectations, and dividends remained flat year-on-year, meeting expectations