Bank of America Securities: MTR Corporation (00066) increases capital expenditure, dividends rise, but maintains “inferior to market” rating

The Zhitong Finance App learned that Bank of America released a research report saying that the capital expenditure of the MTR Corporation (00066) has increased, there is limited room for dividends to rise in the next few years, maintaining a “lower than market” rating, and the target price is HK$27.

The MTR announced that it has signed a project agreement with the Government for the second phase of the Northern Ring Road. The total development cost is about HK$90 billion, which is higher than the bank's forecast of HK$60 billion to HK$70 billion, which means that the second phase will cost HK$59 billion within 10 years; capital expenses for 2027 to 2029 are estimated to be HK$1.1 billion, 2.9 billion and HK$5.9 billion respectively. Due to the high backwardness of expenses, the bank does not expect the project to significantly increase the MTR's leverage ratio or short-term capital requirements.

In addition, the Government will grant MTR development rights for a total of 46 hectares of land for residential and commercial use. The total floor area is yet to be determined. The sites are located in Ngau Tam Mei, San Tin, Kwu Tung North and Au Tau, respectively. The MTR can deduct a fixed amount of HK$86.4 billion from the future land price payable for the land in question. The bank assumes an average land area ratio of 5 times, and the above land can provide about 25 million square feet of total floor area, which means a subsidy of HK$3,456 per square foot of total floor area.

According to the bank, although the MTR has quasi-government credit conditions and successfully issued bonds this year, making it not very difficult to borrow, it is expected that there will be limited room for dividends to rise in the next few years due to rising railway capital expenditure, and the return on related property development is still far away. Therefore, the bank sees a 3.8% dividend ratio as unattractive.