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Equity Bottom-Up

With no major property projects sold in 2016, narrow-moat-rated MTR posted a 13% year-over-year decline in core profit, to HKD 9,446 million, while the recurring rail and rental earnings remain robust, rising 4% year over year to HKD 8.9 billion, in line with our expectations. We see pressure from weak consumption in Hong Kong, but expect MTR’s steadily growing patronage to provide solid support to the firm’s rental business, underpinned by its monopoly in Hong Kong’s rail system and attractive rail-plus-property business model that gives it a competitive advantage on its retail assets.Our fair value estimate of HKD 37.00 per share remains unchanged, and we think the shares are slightly overvalued at the current level, with the current year dividend yield falling to 2.6% after the payment of the second tranche of its special dividend of HKD 2.20.Analysts: Jennifer Song and Lorraine Tan, CFA

With no major property projects sold in 2016, narrow-moat-rated MTR posted a 13% year-over-year decline in core profit, to HKD 9,446 million, while the recurring rail and rental earnings remain robust, rising 4% year over year to HKD 8.9 billion, in line with our expectations. We see pressure from weak consumption in Hong Kong, but expect MTR’s steadily growing patronage to provide solid support to the firm’s rental business, underpinned by its monopoly in Hong Kong’s rail system and attractive rail-plus-property business model that gives it a competitive advantage on its retail assets.Our fair value estimate of HKD 37.00 per share remains unchanged, and we think the shares are slightly overvalued at the current level, with the current year dividend yield falling to 2.6% after the payment of the second tranche of its special dividend of HKD 2.20.Analysts: Jennifer Song and Lorraine Tan, CFA

MTR's 2016 Results In Line; Dividend Yield Will Fall to 2.6% After Special Dividend of HKD 2.20