New malls to boost MTR Corp’s revenue in 2024

Transpo operations are also expected to make stronger earnings contributions this year.

New shopping malls in Hong Kong will boost MTR Corporation’s (MTRC) revenue growth in 2024.

Newly-opened The Wai and Southside shopping malls represent an additional 30% of the company’s gross floor area, S&P Global Ratings said in a commentary report of MTRC. Revenue from MTRC’s property rental and management business reached HK$5.08b in 2023, 6.3% higher than a year earlier. 

MTRC’s transportation operations in Hong Kong are expected to make an even stronger contribution in 2024. The segment contributed HK$5.59b to MTRC’s earnings. 

“The resumption of lucrative cross-boundary transport will continue to drive the strong cash inflow,” S&P said.

However, the station commercial and property rental segment will remain weak for a longer period, driven by weak market sentiment in recent quarters. 

“Rental reversion rates–new rent levels for new leases–are likely to stay negative in 2024,” S&P warned, noting that in 2023, station kiosks in Hong Kong had a reversion rate of -6.9% and shopping malls -8.4%.

In Q4, the prices of private domestic homes in Hong Kong has dropped by over 20% from its 2021 peak. The current market sentiment could further delay MTRC’s pipeline of projects and land development, S&P said.

MTRC’s borrowing costs will likely climb in 2024 at prevailing interest rates, an increase that will weigh on the company's financial metrics. In 2023, MTRC’s borrowing costs are HK$1.14b, reflecting an average borrowing rate of 3.5%, higher than the 2.5% a year earlier.

Capital expenditure (capex) is also likely to ramp up over the next two years due to new projects for rail extensions and planned lines. These projects could pressure the company's leverage, S&P said.