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Wednesday, Oct 28, 2020

Hong Kong’s embattled MTR Corporation reveals it will incur HK$1.6 billion in costs from protests

Lower revenue from train services, repair costs for damaged facilities, extra expenses for security and rent concessions take toll. As a result, the corporation has warned of a significant decline in profits in the financial year ending December 31

Hong Kong’s political and social unrest has dealt a heavy blow to rail operator MTR Corporation this year, with the embattled firm saying it will incur HK$1.6 billion (US$205 million) in costs.

The government-controlled company on Thursday revealed for the first time the financial exposure arising from the protests, which centred on lower revenue from train services, repair costs for damaged facilities, extra expenses for strengthening security and concessions to tenants of its retail space.

As a result, the corporation warned of a significant decline in profits from a year ago for the financial year ending December 31.
Hong Kong Federation of Railway Trade Unions vice-chairman Tam Kin-chiu said MTR management told him that despite the additional expenses and reduced income, the rail operator could still be profitable this financial year.

“Since the MTR is still supported by its rental and property business, despite the additional expenses for its rail operation, the management estimates that it could still make profits this financial year,” he said.

Last year, the company’s profit from underlying business grew 7.1 per cent to HK$11.26 billion.

The beleaguered firm emerged as a target of radicals in August – two months after anti-government demonstrations broke out – after they accused it of bowing to pressure from Beijing following a scathing attack by mainland Chinese media.

The outlets accused MTR of facilitating the actions of mobs by laying on extra trains during protests.

The rail operator has since taken a tougher stance against protesters by obtaining a court injunction to prevent disruptive acts on its network and closing stations in advance of demonstrations. But it denied it kowtowed to Beijing’s pressure.

The company, which currently carries nearly 5 million passengers a day, revealed that its patronage had been falling since July, with a decline of 27.4 per cent in October and 27.2 per cent in November from the same period last year.

“The MTR should reflect on why Hongkongers are giving up on taking its trains,” lawmaker Jeremy Tam Man-ho of the opposition Civic Party said.

When the government’s ban on people wearing facial coverings during protests took effect on October 5, MTR suspended services on the entire network for the day. The following day, service hours on most rail services were shortened until December 1, only returning to normal after that. During protests, it shut down stations temporarily at short notice.

As of November 24, radicals had caused extensive damage to 85 of 94 rail stations and 62 of 68 Light Rail stops. More than 1,900 turnstiles, 1,100 ticketing and top-up machines, 1,200 surveillance cameras, 202 lifts and escalators, as well as 190 roller shutters were damaged. Some 54 heavy railway trains and 16 Light Rail vehicles had also been damaged.

Transport sector lawmaker Frankie Yick Chi-ming said it was no surprise to hear about the losses incurred by the firm.

“A lot of revenue generated from its operations, however, is from property businesses, I guess there may not be a deficit for its overall financial results,” he said.

Francis Lun Sheung-nim, chief executive of brokerage GEO Securities, said he expected more financial exposure would arise from the protests, which show no sign of abating.

“It will only get worse,” Lun said, adding that since June he had maintained his “sell” recommendation on the stock. “It is a public secret that the MTR Corp is the second enemy of radical protesters after police, and they call it the ‘Communist Party Rail’.”

MTR shares were up 35 HK cents, or 0.81 per cent, to HK$43.55 before the company announced its profit warning on Thursday.

Despite MTR’s financial challenges, union chief Tam expressed hope that the rail giant would stick to the established wage adjustment mechanism and reward staff for their hard work in dealing with the radicals’ vandalism.

“I hope the MTR Corp will offer us a pay rise next year in accordance with the current pay adjustment mechanism considering the contribution and hard work of the staff during these difficult times. We also hope our year-end bonuses will remain the same,” he said.

For 2019, other than the protest-related loss, MTR’s results were hurt by HK$2.43 billion in provisions from a construction scandal involving Hung Hom station and a rail joint venture in Britain called First MTR South Western Trains.

“The reduced profit was because of its poor supervision on the works at Hung Hom station,” lawmaker Tam said.

The corporation said that owing to the impact of the social unrest, underlying business profit this year would be less than that of last year, but would have been higher without the total provisions.


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