2019年9月18日星期三
 
專家論市
Martin Hennecke

Turmoil leaves MTRC driving in the dark
 
11/09/2019
 
<p>Hong Kong has been racked by months-long social unrest marked by increasingly violent protests. And though the situation has not deteriorated further in recent days, violence has become almost a daily occurrence.</p><p>Violent protesters continue to blatantly attack infrastructural facilities and their prime targets are the MTR stations and international airport.</p><p>While the government will surely foot the bill for any damages at the airport, as it is not publicly listed, metro operator MTR Corp (0066) is left counting the costs on its own.</p><p>Hong Kong&#39;s government owns a 75.28 stake in the MTR operator while the remaining 24.72 percent is in public hands.</p><p>The anti-fugitive bill demonstrations have hit both the transport and property business - the two previous drivers and pillars for MTR Corp - in varying degrees so it is hard to say if MTRC&#39;s share price has hit rock bottom.</p><p>MTR stations have been under siege almost every day but the operator must be commended for the speed at which it has repaired the damaged facilities. MTR lines have largely remained unaffected, except for some stations which were closed for short spells at night.</p><p>MTRC has not revealed the cost of the damages, but the losses are unlikely to break the bank, and at the very least, will be much less than the HK$2.43 billion provision made in the first half for costs arising from construction problems at Hung Hom Station in the Sha Tin to Central Link.</p><p>In addition to losses from damages, we need to consider the decline in passenger numbers.</p><p>On the one hand, the protesters - excluding the freeloaders - have frequently used the metro to take to the streets, and this would have driven up footfall.</p><p>But on the other, the number of passengers using the subway at night - other than regular commuters - has sharply plunged, and this covers a longer time frame.</p><p>So any revenue increase due to an influx of protestors on trains would have been offset by the larger decrease in general passenger numbers.</p><p>And though the protests against the fugitive bill have been going on for months, the storm is yet to abate and there does not seem to be any light at the end of the tunnel. So all the operator can do is grin and bear it.</p><p>MTRC&#39;s share price could also be hit by Fitch Ratings downgrade of Hong Kong.</p><p>Last week, the credit ratings agency downgraded the city&#39;s rating a notch from AA+ to AA and the city&#39;s outlook from stable to negative for the first time since the 1997 handover, citing the economic damages arising from the anti-fugitive bill protests, and doubts about governance. Political factors aside, Fitch&#39;s rating revision might influence how other credit rating agencies view Hong Kong, or others might downgrade the credit ratings of some Hong Kong firms.</p><p>In 2017, Hong Kong&#39;s rating was lowered by the other two major international credit rating agencies - Standard &amp; Poor&#39;s and Moody&#39;s - and the MTRC&#39;s credit rating was also lowered.</p><p>A cut in credit ratings will affect a company&#39;s borrowing cost, so investors and MTRC shareholders should closely monitor how this ratings storm develops.</p><p>The share price of the subway operator has plunged about 17.4 percent from a high of HK$55.75 in mid-July to HK$46.05 as of yesterday.</p><p>In contrast, Link REIT, a competing stable stock that always used to compare MTRC against, saw its price fall only 11 percent from a high of HK$99.8 at the end of June to HK$88.70, reflecting that MTRC is facing a harsher operating environment than Link REIT at this point in time.</p><p>Moreover, MTRC&#39;s two-driver advantage has turned into twin nightmares for the company.</p><p>Hong Kong&#39;s property market is bereft of optimism at present because of the political and social unrest.</p><p>Any short-term correction would not hit the company too hard as property developers could adjust prices based on the cost of land acquisitions and the government could also increase its land supply to MTRC.</p><p>However, the major worry is that if the property market sees a significant slump and demand dries up, MTRC shares will then face a real challenge.</p>

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