MTR Corp – Hong Kong’s sole rail operator – issued a rare profit warning on Thursday that it will make a provision of HK$2 billion for costs arising from problems at Hung Hom Station of the Sha Tin to Central Link.
Together with another provision of about HK$430 million for the company’s potential loss from its investment in the United Kingdom’s First MTR South Western Trains, the total charge that would be reflected in the company’s profit and loss account is around HK$2.43 billion.
It will have a negative impact on MTRC, but limited to its cash flow and operation, since the market had already expected this.
Dickie Wong Tak-kei
executive director of research at Kingston Securities
The train services operator posted a 7.1 percent increase in underlying profits to HK$11.26 billion in 2018, with the first half of the year raking in HK$4.65 billion.
It means the provision is equivalent to 22 percent of the full-year underlying profits for 2018, and 52 percent of that in the first half of last year.
“It will have a negative impact on MTRC, but limited to its cash flow and operation, since the market had already expected this,” said Dickie Wong Tak-kei, executive director of research at Kingston Securities.
He said the fees actually paid by MTRC remain unknown, but the provision can be seen as a responsible attitude taken by the rail company. MTRC will release its interim results in one month.
The corporation said it will continue to discuss with the SAR government about an overall settlement of their funding obligations relating to the cost of completing the Sha Tin to Central Link project, arising from the problems at Hung Hom Station, as well as those associated with the phased opening of the Tuen Ma Line, which will connect the existing West Rail and Ma On Shan lines.
Wong said MTRC shares are likely to tumble 5 percent at most after the profit warning. MTRC shares picked up 0.09 percent to close at HK$55.70 on Thursday.
With the company’s steady income from railway and property development rights, shares have continued to climb in recent months despite a senior management reshuffle.
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