Blame it on weakening tourist arrivals.
It has been noted that MTR's income from transportation and rental will see slowdown.
According to a research note from Jefferies, in the first five months, domestic patronage for rail service grew 4.6% yoy to 644.2mn, in line with 4.5% CAGR from 2010-14.
With tourist arrivals weakening, especially after the restrictions imposed on Shenzhen residents visiting HK in Apr 15, growth of patronage will likely slow in 2H15.
Here's more from Jefferies:
Rental growth of malls such as Elements in Kowloon Station saw sales decline, which is not a surprise given weak tenant sales as revealed by different HK landlords.
However, kiosk rental is expected to see high single-digit to low-teens growth on stable foot traffic.
Property sales booking in 1H15 and FY17: Profit sharing for the sales of Hemera will be booked in 1H15. According to our ests, profit can reach HKD2.2bn.
Tiara, MTRC’s first residential project in China (Shenzhen Longhua district), has been launched for presale in 1H15. Given the latest management update, sales recognition will be in FY17. According to MTRC’s pipeline, no property sales booking will be in FY16; thus resulting in profit decline.
Earnings reversion: First, we expect its operating margin to fall due to: 1) 5.25% avg payroll increase from July and 2) expanded staff headcount for service enhancements.
As a result, EBITDA margin will fall 1-2ppts on our estimate. We introduced our FY17 forecast and cut our FY15/16E by 7.8%/36.7% due to moderated rail and rental income, and a shift in China sales recognition.
Over-budget of high-speed rail posts uncertainty: According to MTRC, the latest budget for the HK link of the high-speed rail project reached HKD85.3bn, HKD18.4bn higher than the original budget of HKD66.9bn. Further delay and the risk of additional costs will affect MTRC's financial stability.
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