Shen Wan Hongyuan: Target price of HK$35.55 for “increase in holdings” rating for first time MTR Corporation (00066)

The Zhitong Finance App learned that Shen Wan Hongyuan released a research report saying that considering the diversified operations of the MTR Corporation (00066), the valuation discount is 20%. It is estimated that the total corporate equity value of the MTR Company is HK$221.3 billion, and the corresponding target stock price is HK$35.55 per share. There is still 19% room compared to the current market value. Covered for the first time, a “gain” rating was given.

Shen Wan Hongyuan's main views are as follows:

Since its establishment in 1975, the MTR Corporation has gradually grown into the core operator of Hong Kong's rail transit

The company was listed on the Hong Kong Stock Exchange in 2000, merged with the Kowlo-Guangzhou Railway Company in 2007, and officially changed its name to Hong Kong Railway Co., Ltd. Since 2005, it has successively obtained franchise projects in Beijing, Hangzhou, Australia, etc., and the global layout is beginning to take shape. The actual controller of the company is the Hong Kong Special Administrative Region Government represented by the Financial Secretary's corporation. The controlling shareholder of the MTR Corporation is the Hong Kong Special Administrative Region Government, with a shareholding ratio of 74.45%. The remaining shares are held by public shareholders and institutional investors.

The “rail+property” development model, network expansion supports land back-up, and the recovery of the Hong Kong real estate market is expected to bring growth to the company's long-term property development

Due to the high cost of building a new railway, the long payback period and high maintenance costs, the government will accordingly hand over land development rights along the railway line to the MTR to support the huge expenses of railway construction and fund the railway project using the “rail+property” development model. The Hong Kong real estate market has shown a recovery trend since this year. The boost in the property market is expected to bring growth to the company's long-term property development. 2025 and 2026 are the centralized accounting periods for property development in the previous cycle.

The company currently uses a progressive dividend policy

In 2015-2024, the company's dividend per share rose steadily, from HK$1.06 to HK$1.31, using a progressive dividend policy. Despite losses in 2020, the company kept its dividends unchanged. Performance has increased significantly in the past two years, and it is expected that current dividends will be maintained. The bank predicts that MTR's net profit for 2025-2027 will be $162.03/201.66/10.138 billion, respectively, and the corresponding PE from 2025 to 2027 will be 12x/9x/19x, respectively. As the 2025 and 2026 results have maintained a progressive dividend policy of $1.31 per share in 2024, which is maintained based on the company's dividend per share forecast and based on the latest market value on January 5. The dividend rate for 2025-2027 is 4.4%/4.4%, respectively. The company's recurrent business was valued at FCFF, and the NAV valuation was used for the company's property development business. Through segmental valuation, the company's overall corporate equity operating value was HK$276.6 billion.

Risk warning: Hong Kong's macroeconomic growth rate fell short of expectations; the company's capital expenditure exceeded expectations; real estate sales in Hong Kong, China fell short of expectations, and the company's land tender fell short of expectations.