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Hong Kong train operator MTR warns of first annual loss

Plunge in property values pushes company $619m into the red

Looking down an escalator at an MTR train station: The Hong Kong public transport company is staring at its first annual loss.   © Reuters

HONG KONG -- Hong Kong's public transportation operator MTR said Tuesday it expects to report a net loss of around 4.8 billion Hong Kong dollars ($619 million) for 2020, which would mark the company's first year in the red since it went public in 2000.

In an announcement after market hours, MTR blamed the "significant adverse impact" of the ongoing coronavirus pandemic and the deterioration of the local economy for the record loss.

Hong Kong is mired in the so-called fourth wave of the coronavirus. The territory's economy, which was already suffering from anti-government protests that began in the summer of 2019, has shrunk for five consecutive quarters through the July-to-September period, sinking the value of MTR-owned properties.

MTR, which is 75% owned by the Hong Kong government, runs the territory's subways, airport access trains, a high-speed rail link with the mainland, selected bus lines and a substantial property business. It also manages mass transit lines beyond Hong Kong, in a few mainland Chinese cities, Macao, the U.K., Sweden and Australia.

MTR's net loss for the first-half period was HK$334 million.

The largest portion of the damage in 2020 came from a revaluation loss of HK$9.2 billion in its property portfolio. The non-cash item took a heavy toll on the company's performance as the pandemic and economic downturn put downward pressure on both retail and office rents. The company recorded an HK$1.4 billion profit? in 2019.

Ridership on MTR's domestic transport services was hit hard as well. Provisional data indicates the total ridership in 2020 was 1.31 billion, a 31.5% drop from the year before, as social distancing measures kept more people at home.

The company said its rent revenue from concessions at stations, shopping malls and duty-free shops at the borders with mainland China have declined, as MTR agreed to certain abatements with its lessees.

In addition, the company will recognize a provision of HK$1.4 billion for an ongoing new subway line project linking Sha Tin and Central. The revelation of substandard construction quality, originally brought to light by a local media report, has caused the project to run beyond budget and schedule. The provision pushed overall recurrent businesses to a record HK$1.1 billion loss, down sharply from an HK$5 billion profit in 2019.

However, this indicates that apart from the provision, overall recurrent businesses were still profitable -- though at a much lower level than a year before.

MTR's property development segment maintained a profit of HK$5.5 billion, only slightly lower than HK$5.6 billion in 2019, thanks to revenue from the Lohas Park complex in the eastern Kowloon district.

Despite the heavy loss, the company said the "overall financial position of the Group remains sound." The two major loss factors -- the property revaluation and the provision -- are both non-cash items. Through years of profit accumulation, the company was sitting on HK$8.82 billion of cash at the end of June.

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