With profits on track, MTRC exports its model (hktdc.com)


	Hong Kong is leading by example, boasting one of the world's most efficient, safe, affordable and frequent public transport systems

Hong Kong's Mass Transit Railway Corporation (MTRC), one of the few consistently profitable subway operators in the world, is now exporting its successful business model.

The operator of Hong Kong's main underground railway has branched out with a series of deals and proposals in China and Europe.

"It's good for their long-term prospects," said Steven Leung, director of institutional sales at UOB KayHian Securities in Hong Kong.

Building and operating a subway is a capital intensive business. Many cities opt to inject large public subsidies and run the railways at a loss rather than push up fares and discourage commuters from using public transport.

Unique solution

MTRC and the Hong Kong government have come up with a unique solution which allows the company to be profitable, pay for its own rail network expansion plans, and yet still offer affordable fares. Government land is granted to MTRC along rail lines which can be jointly developed with real estate companies.

Such property projects are attractive for private developers to join as they can find a ready supply of customers to buy apartments in the projects. Potential home-buyers are keen to live near MTRC stations to cut commuting time.

Besides property development profits, MTRC also has its own property investment projects such as shopping malls, which provide a steady stream of rental income. For the first half of the year MTRC reported an underlying profit of HK$3.95 billion (US$507 million), up 123 per cent on a year earlier with the gains boosted by profit-sharing from four real estate projects.

"This significant increase was mainly due to very strong property development profit, as well as continued growth in our recurring businesses," said Chairman Dr Raymond Ch'ien.

Steaming ahead

The railway company carried 2.29 million passengers per day in the period, or about a third of Hong Kong's total population.

Net profits were HK$8.46 billion (US$1.09 billion) for last year, up from HK$1.54 billion (US$198 million) in 1996. The company held an initial public offering at HK$9.38 (US$1.21) per share and listed on the Hong Kong stock market in 2000. The stock has since risen to as high as HK$21.50 (US$2.76) this year.

"It's a good example of how you have can build a profitable railway. It clearly has a very high ridership every day," said Stewart Aldcroft, Asia Regional Director for Noble Investments.

It's little wonder that MTRC is being viewed as a successful model which Chinese municipal governments are keen to follow. They are tapping into the company's expertise by partnering with it on new subway lines.

In April, MTRC signed a concession agreement to participate in Beijing's planned Line 4 which will become a major north-south artery in the capital with 24 stops, 23 of them underground. The 29-km line is due to be completed in 2009. Work is already well under way on the project, which is the first time China has formed a public-private partnership to build a subway line.

Links strengthen

MTRC is also developing strong links with Shenzhen and is exploring other projects in China. The company has signed two MOUs this year -- for another project in Shenzhen and one in Wuhan, a central city and transport hub with a population of 7 million.

In Britain, MTRC is part of a group bidding to run rail franchises in the southwest and for commuter services north of London. Elsewhere in Europe, MTRC is exploring opportunities in Scandinavia.

Back home, MTRC is waiting for the political and administrative approval process for a deal to merge with the Kowloon-Canton Railway Corporation (KCRC), the other government-run railway company in Hong Kong. The deal, announced in April, involves MTRC leasing KCRC's rail routes in the New Territories and buying some of its property assets for development. The merger was greeted enthusiastically by stock market investors who pushed MTRC shares to a record high.