Shenwan Hongyuan released a research report stating that, considering MTR Corporation's diversified operations and a 20% valuation discount, it calculated the company's total enterprise equity value to be HK$221.3 billion. This corresponds to a target share price of HK$35.55 per share, implying a 19% upside from the current market capitalization. Initiating coverage with an "Add" rating.
Since its establishment in 1975, MTR Corporation has gradually grown to become the core operator of Hong Kong's rail transit system. The company was listed on the Hong Kong Stock Exchange in 2000, merged with the Kowloon-Canton Railway Corporation in 2007, and officially renamed The MTR Corporation Limited. Starting in 2005, it successively secured franchised projects in locations such as Beijing, Hangzhou, and Australia, marking the initial formation of its global footprint.
The company's ultimate controlling shareholder is the Government of the Hong Kong Special Administrative Region, represented by the Financial Secretary Incorporated. The Government of the Hong Kong Special Administrative Region is the controlling shareholder of MTR Corporation, holding a 74.45% stake, with the remaining shares held by public shareholders and institutional investors.
The "Rail plus Property" development model, where network expansion is supported by land grants that in turn subsidize the railway, is expected to benefit the company's long-term property development growth as the Hong Kong real estate market recovers. Due to the high costs, long payback periods, and significant maintenance expenses associated with building new railways, the government typically grants MTR the land development rights along railway lines to help subsidize the substantial costs of construction, funding railway projects through this "Rail plus Property" model. The Hong Kong real estate market has shown a recovery trend this year, and the boost in the property market is expected to bring growth to the company's long-term property development business, with 2025 and 2026 being the peak periods for revenue recognition from properties developed in the previous cycle.
The company currently adopts a progressive dividend policy. From 2015 to 2024, the company's dividend per share steadily increased from HK$1.06 to HK$1.31, reflecting a progressive dividend policy. Despite reporting a loss in 2020, the company maintained its dividend unchanged. With significant earnings growth in recent years, the current dividend level is expected to be sustained.
Shenwan Hongyuan forecasts that MTR Corporation's net profit attributable to shareholders for 2025-2027 will be HK$16.203 billion, HK$20.166 billion, and HK$10.138 billion, respectively. The corresponding P/E ratios for 2025 to 2027 are 12x, 9x, and 19x. Given the high earnings growth expected in 2025 and 2026, and the company's progressive dividend policy, with the 2024 dividend per share at HK$1.31, which is projected to be maintained, the dividend yields for 2025-2027 are estimated at 4.4%, 4.4%, and 4.4%, based on the latest market capitalization as of January 5th.
A Free Cash Flow to the Firm valuation was applied to the company's recurring businesses, while a Net Asset Value valuation was used for its property development business. The sum-of-the-parts valuation method resulted in a total enterprise equity operating value of HK$276.6 billion.
Risk warnings include: Hong Kong's macroeconomic growth falling short of expectations; the company's capital expenditures exceeding forecasts; and Hong Kong property sales or the company's land tender results underperforming expectations.
