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Research Announcement:

Moody's - Hong Kong MTRC issues profit warning as ridership drops 38% in H1 2020, a credit negative

09 July 2020

Hong Kong, July 09, 2020 --

  • The company estimates a total net loss of HKD400 million for H1 2020, compared with a net profit of HKD5.5 billion for H1 2019
  • But leverage should stay consistent with its baseline credit assessment, supported by sound debt management

Moody's Investors Service says in a new report that MTR Corporation Limited's (MTRC, Aa3 stable) profit warning for its H1 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," says Ralph Ng, a Moody's Assistant Vice President and Analyst.

The expected HKD400 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 HKD6 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.

Subscribers can access the report "MTR Corporation Limited: Profit warning for first half 2020 results is credit negative" at: http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1236968

NOTE TO JOURNALISTS ONLY: For more information, please call one of our global press information hotlines: New York +1-212-553-0376, London +44-20-7772-5456, Tokyo +813-5408-4110, Hong Kong +852-3758-1350, Sydney +61-2-9270-8141, Mexico City 001-888-779-5833, São Paulo 0800-891-2518, or Buenos Aires 0800-666-3506. You can also email us at mediarelations@moodys.com or visit our web site at www.moodys.com.

This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page on www.moodys.com for the most updated credit rating action information and rating history.

Ralph Ng
AVP-Analyst
Project & Infrastructure Finance
Moody's Investors Service Hong Kong Ltd.
JOURNALISTS : 852 3758 1350
Client Service : 852 3551 3077

Ning Loh
Associate Managing Director
Project & Infrastructure Finance
Moody's Investors Service Hong Kong Ltd.
JOURNALISTS : 852 3758 1350
Client Service : 852 3551 3077

Releasing Office :
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS : 852 3758 1350
Client Service : 852 3551 3077

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