MTR Corporation Limited (66) Earnings Call Transcript & Summary

Good afternoon. Good afternoon, our friends from the media, present in person or watching online. I am Linda Choy, Corporate Affairs and Branding Director of the MTR Corporation. I'd like to welcome you all to the MTR 2021 interim results announcement. The MTR this year has launched a brand new corporate strategy. We are promoting our matrix corporate structure. Members -- several members of our management will now meet you in the respective new titles. Let me now introduce to you the representatives of the corporation present today. Sitting in the middle, we have Dr. Jacob Kam, our CEO; to his right is our Managing Director, Mr. Adi Lau, Mainland China business and Global Operation standards; to his -- Mr. Lau's right is, Mr. David Tang, Property and International Business Director; and Mr. James Chow, General Manager, SCL and HSR of the MTR; and to the right-hand side of Dr. Kam, we have Mr. Herbert Hui, our Financial Director. So the press conference will be conducted mainly in Cantonese. Dr. Kam will brief you on the interim results of the MTR for the year '21. Mr. Herbert Hui will present the financial results. Following that, Dr. Kam will share with you the outlook of the corporation. And finally, there will be a Q&A session.

Good afternoon, ladies and gentlemen. Welcome to the MTR Corporation's Interim Results 2021 Press Conference. In the first half of 2021, our community stood united in fighting COVID-19 with an aspiration to enable our society to return to normal and to put the economy back on track. MTR is committed to keeping Hong Kong moving through these difficult times and continuing our safe and reliable services. In June, we commenced service for the full Tuen Ma Line, which has enhanced the connectivity of the overall Hong Kong railway network. I joined over 1,000 members of the public who are truly excited to witness the full Tuen Ma Line opening at Sung Wong Toi Station that morning. Their enthusiasm is an encouragement to us to continuously provide a world-class railway service. Over the past 2 years, we have faced a number of challenges. Socioeconomic activities have been strongly affected by the worldwide pandemic, cross-boundary traffic remains suspended and tourists have yet to come back to Hong Kong, while revenue from our railway station commercial and shopping mall businesses have not fully recovered to pre-pandemic levels. However, with our diversified business portfolio, we have maintained a solid financial position, and we are seeking to generate new business opportunities and to ensure job security for our staff. We also continue to implement our new corporate strategy by driving forward with digitalization and enhancing corporate governance to ensure the long-term sustainable development of our corporation and to keep Hong Kong moving. During the first half of 2021, for our transport operations, apart from maintaining a clean and safe environment in the railway network, MTR continued to achieve high levels of safety and reliability. We attained a world-class performance of 99.9% train service delivery and passenger journeys on time on the heavy rail network. With the economy gradually recovering, amidst the easing of the COVID-19 pandemic in Hong Kong and Mainland China in the first half of this year, the corporation's railway and more businesses saw gradual improvements. Our domestic service patronage increased by 16.7% as compared with the same period last year. Recurring business profit increased to HKD 912 million, which is still behind the pre-pandemic level. Post-tax profit -- property development profit was HKD 3.1 billion. Taking into account our financial position and future capital requirements, the MTR Board has declared an interim ordinary dividend of HKD 0.25 per share. We continue to apply new technologies to enhance customer experience. For example, on the full Tuen Ma Line, we are providing train car loading information through the platform display system. So the passengers can choose to board with more space. Robot assistance are also deployed for roving service teams on various stations on the new Tuen Ma Line. These are some of the ways that we introduced more technology to bring in a new customer experience. We also continue to make use of big data analysis and innovative technologies to strengthen railway asset maintenance and management efficiency. To promote smart mobility, in addition to the launch of the QR code ticket during the first half of the year, passengers can now report loss property as well as book taxis through the MTR mobile app as part of the mobility-as-a-service experience. The corporation has also been actively developing smart commerce this year as the society evolves rapidly. We have partners with Kerry Logistics Network to set up carry express at MTR shops outlets at various MTR stations, providing passengers with a new retail experience. Regarding the cross-harbor section of the East Rail Line, our team has been striving to drive project delivery. By the end of June, over 94% of the work has been completed. The East Rail Lines new signal system has -- was commissioned in February, and the new trains started running. The track connection work of the main running lines to newly constructed platforms of Hung Hom Station has been largely completed with the installation of overhead lines have also been carried out a schedule in the first half of this year. The corporation is making every effort to explore and implement possible recovery measures to complete the remaining work safely and as quickly as possible. A review of the project program is underway in conjunction with the government, and further announcements will be made as soon as possible. Regarding the next generation of new railway projects, we are proceeding with detailed planning and design of the Tung Chung Line Extension, the Tuen Mun South Extension and the Kwu Tung Station and the Northern Link under the Railway Development Strategy 2014. We will invest in these new lines under the ownership model and the funding arrangements will include the Rail plus Property model. The government has also invited us to proceed with detailed planning and design of the Hung Shui Kiu Station project to serve the increasing development potential in a new development area. For property development, the corporation has awarded THE SOUTHSIDE Packages 5 and 6, which are expected to provide 1,800 residential units. Presales of the lowest part Packages 8, 9 and 10, SOUTHLAND at Wong Chuk Hang Station and The Pavilia Farm at Tai Wai Station were also launched with enthusiastic responses. Superstructure works of the mall, THE SOUTHSIDE, are underway with the opening anticipated in 2023. For the Siu Ho Wan Depot development project, layout planning is in progress, and this project is expected to offer around 20,000 residential units, of which half of them will be public housing. Railway safety and the quality of railway development projects is always our top priority. We are highly concerned about the construction issues at The Pavilia Farm 3 at Tai Wai Station. We have demanded the developer to conduct a full investigation and implement proper remedial measures as soon as possible. They have to ensure that the relevant buildings would meet the requirements of the approved design and statutory requirements. They also must take into consideration the interest of the affected buyers in the follow-up plans. We will do our best to ensure, during the follow-up actions, the construction works of the project will not affect our railway facilities and the safe operations of the railway. On Mainland China and international businesses, they continue to make solid progress. With the COVID-19 outbreak easing across the Mainland China in the first half of this year, patronage of railway operations made gains in Beijing, Hangzhou and Shenzhen. The construction of Shenzhen Metro Line 13 is ongoing, while we're exploring opportunities for station retail and related businesses in Chengdu. For our international business, our joint ventures in U.K. signed the first national rail operations contract for South Western Railway in May this year on a 2-year term with the Department of Transport. And in addition, our subsidiary in Sweden was awarded a 2-year operation and maintenance concession for the Malartag service starting from December this year. In these difficult times amidst the pandemic, the MTR Corporation continues to support community through an array of fare promotions as well as continuing to provide rental concessions to our stations and MTR mall tenants. We are also committed to provide a safe and hygienic environment across our railway network and managed properties. In mid-June, we organized outreach vaccination service for our staff with the support of relevant government departments, and we are also giving away 500 local MTR annual passes to encourage public vaccination. In a rapidly changing global environment, the MTR Corporation has been keeping pace with the times. Since last year, we have started to implement a new corporate strategy founded on 3 pillars to pursue sustainable development growth in the first half of 2021. We implemented a matrix organization in phases with clearly defined responsibilities as well as enhanced management. We are also committed to making sustainable development and ESG, the cornerstone of our day to day businesses and operations, and to create value for all our stakeholders. Railways are a green and low-carbon mode of transport, and we continue to play an active role in further promoting reductions in greenhouse gas emissions. As a pioneer in green finance in Hong Kong, we have a range for HKD 4.8 billion in green financing in the first half of this year, to fund railway-related conservation and energy efficiency improvement projects. The corporation has also launched a new forward -- new reward platform, the Carbon Wallet app, to encourage people to adopt low-carbon lifestyle by providing the public with recycling information. The corporation actively advocates for social inclusion and connecting the community. We have collaborated with various NGOs and social enterprises in the past 6 months to reach out to different advantage groups and to promote a caring culture. We organized a special workshop to share the joy of photography with the visually impaired at the Hong Kong West Kowloon Station of high-speed rail. We also invited ethnic minorities to visit the Shek Kong Stabling Sidings, promoting a culture of caring by making good use of the MTR resources. Before passing the time to Herbert for an overview of our financial performance in the first half of this year, I want to reiterate that the pandemic still continues to post great challenges to our businesses. Riding on our improvements in the overall economic environment and the benefits of having a diversified business, our team and I will do our utmost to push through these difficult times together and keep moving with the community. Our community stood united in fighting COVID-19 with an aspiration to put our economy back on track. MTR is committed to keeping Hong Kong moving through these difficult times and continuing our safe and reliable services. In late June, we commenced passenger service for the full Tuen Ma Line. The line has enhanced the connectivity of the overall Hong Kong railway network. The public were thrilled and excited about the full line opening. Their enthusiasm is an encouragement to us to continuously provide a world-class railway service. Over the past 2 years, we have faced a number of challenges as cross-boundary traffic remains suspended, and tourists have yet to come back. Revenues from our railway station commercial and shopping mall businesses have not fully recovered to pre-pandemic levels. However, with our diversified business portfolio, we have maintained a solid financial position, and we are seeking to generate new business opportunities. We also continue to implement our new corporate strategy by driving digitalization and enhancing corporate governance to ensure the long-term sustainable development of our corporation. During the first half of 2021, MTR continued to achieve a world-class 99.9% train service delivery and passenger journeys on time on the heavy rail network. With the easing of COVID-19 pandemic in Hong Kong and the Mainland of China, the corporation's railway and mall business saw gradual improvements. Our domestic service patronage increased by 16.7% as compared to the same period last year. Recurring business profit in the first half of this year increased to around HKD 910 million, which was still behind the pre-pandemic level. Post-tax property development profit was HKD 3.1 billion. Taking into account our financial position and future capital requirements, the MTR Board has declared an interim ordinary dividend of HKD 0.25 per share. We continue to apply new technologies to enhance customer service. For example, on the full Tuen Ma Line, we are providing train car loading information through the platform display system and robot assistance are deployed at stations. We also continue to make use of big data analysis and innovative technologies to strengthen railway asset maintenance and management efficiency. To promote smart mobility after launching the QR code tickets, we have now enabled passengers to report loss properties and to book taxis through the MTR mobile app as part of the mobility-as-a-service experience. We have also partnered with Kerry Logistics Network to set up Kerry Express @ MTR Shops outlets and various MTR stations. This will provide passengers with a new retail experience. Regarding the cross-harbor section of the East Rail Line, our team has been striving to move forward the project. By the end of June, over 94% of the work has been completed. The East Rail Line's new signaling system and new trains were introduced into service in February. The corporation is making every effort in exploring and implementing possible recovery measures to complete the remaining work safely and as quickly as possible. A review of the project program is underway in conjunction with the government, and further announcements will be made as soon as possible. Regarding the next-generation new railway projects. We are proceeding with detailed planning and design for the Tung Chung Line Extension, Tuen Mun South Extension, Kwu Tung Station and the Northern Link. We will invest in the construction of these new lines under the ownership model and the funding arrangements includes the Rail plus Property model. Besides, the government has invited us to proceed with the detailed planning and design of the Hung Shui Kiu Station project. For property development, the corporation already awarded THE SOUTHSIDE Packages 5 and 6. The presales of LOHAS Park Packages 8, 9 and 10, SOUTHLAND at Wong Chuk Hang Station and The Pavilia farm at Tai Wai Station were also launched with enthusiastic responses. Superstructure works of the mall called, THE SOUTHSIDE, are underway with the opening anticipated in 2023. For the Siu Ho Wan Depot development project, layout planning is in progress and is expected to offer approximately 20,000 residential units, of which half of them will be public housing. Railway safety and the quality of property development projects is always our top priority. We are highly concerned about the construction issues at The Pavilia Farm Phase 3 at Tai Wai Station, and have demanded the developer to conduct a full investigation and implement proper remedial measures as soon as possible. They have to ensure that the relevant buildings would meet the requirements of the approved design and all the statutory requirements. They also must take into consideration the interest of affected purchases in the follow-up plans. MTR will ensure that the construction work of the project will not affect the railway facilities and the safe operations of the railways. Mainland of China and international businesses continue to make solid progress. With COVID-19 outbreak easing across the Mainland of China, patronage of railway operations in Beijing, Hangzhou and Shenzhen have made gains in the first half of this year. The construction of Shenzhen Metro Line 13 is ongoing, while we are exploring opportunities for station retail and related businesses in Chengdu. For our international business, our joint venture in U.K. signed the first national rail operations contract for South Western Railway with the Department of Transport on a 2-year term. In addition, our subsidiary in Sweden was awarded a 2-year operations and maintenance concession for the Malartag service starting from December this year. In the difficult times amid the pandemic, the MTR Corporation continues to support the community through an array of fare promotions for our passengers as well as continuing to provide rental concessions to our tenants in our stations and shopping malls. We are also committed to providing a safe and hygienic environment across our railway network and managed properties. In mid-June, we organized outreach vaccination service for our staff, and we have offered to give away 500 local MTR annual passes to encourage public vaccination. Since last year, we have started to implement a new corporate strategy founded on 3 pillars to pursue sustainable business growth. In the first half of 2021, we have implemented a matrix organization in phases with clearly defined responsibilities as well as enhanced risk management. We are also committed to making ESG the cornerstone of our day-to-day business and to create values for our stakeholders. Railways are green and low-carbon mode of transport, and we continue to play an active role in further promoting reductions in greenhouse gas emissions. As a pioneer in green finance in Hong Kong, we have arranged HKD 4.8 billion in green financing in the first half of this year to fund railway-related conservation and energy efficiency projects. The corporation has also launched a new reward platform, the Carbon Wallet app, to encourage people to adopt a low-carbon lifestyle. In addition, we actively advocate for social inclusion. We have collaborated with various NGOs and social enterprises in the past 6 months to reach out to different disadvantaged groups and promote a caring culture. Before handing over to Herbert for an overview of our financial performance in the first half of this year, I want to reiterate that our team will do our utmost to ride through these difficult times together with the community. Now I hand over to Herbert to introduce our financial performance.

Thank you, Jacob. Next, I will highlight our financial results for the first half of 2021. Recurrent business profit in Hong Kong and outside of Hong Kong increased to HKD 350 million and HKD 570 million, respectively, mainly due to the gradual recovery from COVID-19. Hence, the group recurrent business profit increased to HKD 912 million, albeit, still significantly below the pre-pandemic level due to this expansion of cross-boundary services. Underlying business profit was about HKD 4.1 billion, a 27.9% decline as compared to last year, mainly due to lower property development profit. Together with the HKD 1.4 billion revaluation loss from investment properties, net profit attributable to shareholders for the first half of 2021 was HKD 2.7 billion. The group's financial position continues to remain sound. As at the end of June, we had cash and equivalent and undrawn committed facilities totaling over HKD 40 billion and net debt-to-equity ratio improved to 15.4%. The Board has declared an interim dividend of HKD 0.25 per share, same as last year. Turning to our business segmental profits in Hong Kong. EBIT from our transport operations was a loss of HKD 2.3 billion narrowed from the same period last year, mainly due to the recovery in domestic patronage. Nevertheless, revenue was still significantly below pre-pandemic level due to the closure of various boundary control points. Our station commercial EBIT decreased 14.2% as duty-free shops still operated normally in January of last year. Property rental and management business EBIT decreased by 5.7%, also due to various rental concessions and negative reversion partly offset by the contribution from newly opened shopping mall. Outside of Hong Kong, EBIT of our Mainland of China and international recurrent businesses increased to HKD 1 billion, led by the recovery in the Mainland of China. And moving on to our consolidated statement of financial position. Total asset increased by HKD 5 billion to HKD 296 billion on the back of cash inflows from property development projects. Total liabilities increased by HKD 8 billion to HKD 122 billion, mainly due to the accrual for the 2020 final ordinary dividend as well as increase in deferred income. As such, total equity decreased by HKD 3 billion to HKD 174 billion. Turning to our cash flow. Our operating activities generated HKD 4.2 billion of inflow. Property development projects also generated HKD 13.8 billion of inflows after accounting for maintenance CapEx, CapEx for new rail extensions and net repayment of borrowings. Net cash inflow during the period was HKD 8.8 billion. On our financing and credit ratios. Total group borrowings decreased by HKD 3.8 billion to HKD 46.6 billion. Average borrowing cost decreased 0.4 percentage points to 2.2%. Net debt-to-equity ratio decreased by 7.1 percentage points to a healthy level of 15.4%, and our interest coverage was 12.1x. For our 3-year CapEx plan, total CapEx from 2021 to 2023 is forecast to be HKD 48.7 billion, of which 63% will be used for the maintenance and replacement of existing trains, signaling and power systems and other Hong Kong railway assets; 9% for new Hong Kong railway projects, planning and designs; and 6% for Mainland of China and overseas investments; and also 22% for Hong Kong property business. With that, I will hand back to Jacob to give us the outlook and strategy.

Thank you, Herbert. Although MTR, along with other companies and people, was severely impacted by COVID-19 since the pandemic broke out early last year, MTR has continued to deliver a safe and reliable service professionally. We have also further expanded the railway network to provide a more convenient public transport service despite the recent recovery in patronage. And for our other businesses, our financial performance has yet to return to pre-pandemic levels as the cross-boundary services remains suspended and tourists have not returned. The Hong Kong business is still our core. We will continue to explore development opportunities in Hong Kong and in the GBA. We will continue to invest for the future in digitalization and the application of new technologies to enhance customer service and improve railway maintenance. Looking forward, we will invest about HKD 100 billion in future railway development and related projects to create jobs and business opportunities for the community. Detailed planning, environmental assessment and design works have commenced for the Tung Chung Line extension and the Tuen Mun South Extension. We have also awarded the planning and design works of the Northern Link, including Kwu Tung Station for the Hung Shui Kui Station project. We are now preparing the tender for detailed planning and design. This new station will serve a new development area, increasing development potential as well as creating job opportunities in the area. Subject to market conditions, we will tender out the Tung Chung traction substation and Pak Shing Kok Ventilation Building property development projects in the next 12 months. We will also invite tenders for the Tung Chung East Station Package 1, subject to the time line of the railway project agreement with the government. Together, these packages could supply approximately 4,150 residential units for the Hong Kong property market. The presale consent for La Marina, THE SOUTHSIDE Package 2, has been obtained, while the application for presale consent for the KCRC Yuen Long Station property development Phase 1 is moving forward. We expect to book profit for LOHAS Park Package 7 and 9 in the second half of 2021. We are also exploring the development opportunity of sites along existing and future railway lines, including the Tuen Mun South Extension and the Northern Link. Beyond Hong Kong, the corporation is continuing to explore new opportunities across the Mainland of China, including the Greater Bay Area and in Europe and Australia. We hope to maintain a steady growth in both of our Mainland of China and international businesses. I would like to express my sincere gratitude to our team for their commitment and dedication in maintaining a safe and reliable service. The corporation has been able to sustain growth and maintain a solid financial position because of the concerted professional efforts of all our colleagues in Hong Kong and overseas. Looking ahead, the corporation is fully committed to implementing our new corporate strategy to connect and build communities to reach new milestones and to keep Hong Kong moving. Thank you. [Statements in English on this transcript were spoken by an interpreter present on the live call.]