HTSC·2026-03-13 07:25Investment Rating - The investment rating for the company is maintained at "Buy" with a target price of HKD 35.20 [1]. Core Views - The company's revenue for the fiscal year 2025 was HKD 55.5 billion, a decrease of 7.6% year-on-year, and the net profit attributable to shareholders was HKD 14.7 billion, down 6.9% year-on-year, which was below Bloomberg consensus expectations of HKD 15.9 billion [1]. - The regular business profit decreased by 21.6% to HKD 5.65 billion, while property development profit increased by 8.0% to HKD 11.1 billion. The fair value loss on investment properties was HKD 2.06 billion [1]. - The company plans to distribute a final dividend of HKD 0.89, maintaining an annual total of HKD 1.31, corresponding to a dividend yield of 3.8% [1]. - The report anticipates that the recovery of the Hong Kong residential market and the peak of property handovers will support the "Buy" rating [1]. Revenue and Profit Analysis - The Hong Kong transport operations revenue increased by 2.5% year-on-year, but EBIT losses expanded to HKD 250 million due to rising employee costs and maintenance expenses [2]. - Revenue growth was observed across various lines: local railways (1.2%), cross-border services (6.6%), high-speed rail (3.7%), and airport express (6.4%) [2]. - The company is expected to raise fares by approximately 3% in 2024/25 but freeze prices in 2025/26, with local railway average fare increase limited to 1.7%, below the employee cost increase of 5.8% [2]. Property Development Insights - The property development segment continued to perform well, with net profit increasing by 8.0% to HKD 11.1 billion, driven by contributions from various projects [4]. - The report forecasts that the peak of property handovers will continue into 2026, with significant contributions expected from ongoing projects [4]. - The company has received approval for new property development projects, indicating a positive outlook for future contributions [4]. Earnings Forecast and Valuation - The forecast for net profit attributable to shareholders for 2026 and 2027 has been adjusted to HKD 19.7 billion and HKD 12.1 billion, respectively, reflecting a decrease of 6% and an increase of 9% [5]. - The target price has been adjusted to HKD 35.20 from the previous HKD 29.90, based on a division valuation method [5]. - The valuation for the Hong Kong railway segment is based on DCF with a WACC of 7.0% and a perpetual growth rate of 3% [5].