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00066 MTR CORPORATION
RTNominal down25.400 -0.300 (-1.167%)
Research Report

09/07/2020 15:08

MTRC's (00066) profit warning credit negative - Moody's

[ET Net News Agency, 9 July 2020] Moody's Investors Service said in a new report that
MTR Corporation Limited's (MTRC, Aa3 stable)(00066) profit warning for its 1H 2020 results
is credit negative, with earnings likely to drop significantly as the coronavirus weighs
on its transportation business and property investments.
"While we have captured the negative credit impact of the coronavirus in MTRC's Aa3
issuer rating and a2 Baseline Credit Assessment (BCA), the big expected drop in profit in
the first half of 2020 indicates that its credit metrics will weaken, but still remain in
line with its BCA," said Ralph Ng, a Moody's Assistant Vice President and Analyst.
The expected HK$400 million net loss for the first six months of 2020 partly reflects a
drop in ridership at its transportation network, given the closure of Hong Kong's (Aa3
stable) border crossings with mainland China (A1 stable), travel restrictions and social
distancing rules amid efforts to contain the coronavirus outbreak in Hong Kong.
Losses are also attributable to rental abatements for station retail outlets and
shopping mall tenants adversely affected by fewer customers because of the coronavirus
outbreak.
In addition, MTRC expects a non-cash investment property revaluation loss of around HK$6
billion during the first six months in 2020, caused by a weakened economy in Hong Kong.
But this non-cash item is not likely to affect MTRC's credit metrics.
Overall, Moody's expects debt/EBITDA of 4.5x-5.0x for MTRC in 2020, which is broadly
consistent with its current BCA, supported by controlled debt management over the next
12-18 months. The company's debt/EBITDA should improve to 3.5x-4.0x in 2021 as ridership
normalizes, assuming lessening disruptions over time.
Moody's also expects the company's cash position to remain strong, supported by its
strong operating cash flow generation especially from the property development segment and
prudent financial management. (KL)

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