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MTR has its own mountain to climb

Editorial | Mar 8, 2017
The race for the chief executive's post is heating up, and so is the treasure hunt that takes place once every five years.

In 1997, there was the shipping empire of Tung Chee-hwa's family. Since Tung's election as the first CE, Oriental Overseas (International), controlled by his family, has been sailing forward.

Starting at about HK$4 per share, it's now HK$45 - 11 times higher. In 2007 and 2010, the stock reached the HK$80 region.

The outstanding performance is tied to the economic cycle, and is undeniably the most successful "CE concept" stock.

There was also a "CE stock" when Henry Tang Ying-yen ran in the 2012 election. Probably out of conflict-of- interest fears, that family business was sold to a third party. What happened next is all history - Tang lost the election.

It would be superstitious to blame the business sale for Tang's setback as it was purely political.

The treasure hunt is on once again, but the one this time around has been different. Of the three candidates, Carrie Lam Cheng Yuet-ngor and John Tsang Chun-wah are former top Cabinet ministers, while Woo Kwok-hing is a retired judge.

None of them have any notable business experience and aren't related to any listed companies in particular.

But a handful of "CE stocks" still exists - albeit in a reverse sense - as there are certain shares that may suffer rather than benefit from the election of one of these candidates.

Although it's anyone's guess who the winner will be, Lam is surely the hot favorite - given politburo standing committee member Zhang Dejiang's support for her during his recent trip to Shenzhen.

Remember Lam's mention of the "three mountains" during a speech before she declared her candidacy? The former chief secretary then named MTR Corp Ltd, Link REIT and mandatory provident fund scheme as the three mountains to be overcome.

So, will "Mount MTR" be conquered if Lam is elected?

She has shown restraint in her comments since the controversial mountain call, recently saying that an administration under her would subsidize commuters with dividends from the railway company.

If that's all she meant when she called out the MTRCL and the other two, the impact would be rather limited on the operator, as the government is free to determine how to use its money.

However, it can be a far more complicated story if she has further measures to follow.

Yesterday, the MTRCL announced its results for 2016, which weren't satisfactory. The corporation was profitable, of course, but not as much as before. For 2016, a total profit of HK$10.25 billion was posted - down 21 percent.

Isn't the financial stress already visible?

The next thing to watch out for is the fare-adjustment mechanism currently under review. In an apparent move to lower public expectations, MTRCL chairman Fred Ma Si-hang is suggesting there won't be "earth- moving" changes to the adjustment mechanism.

And in an equally relevant revelation, he said the changes won't require the approval of small shareholders.

In other words, the mechanism will continue to exist, and the changes will be minor, because the management must obtain the blessings of the minnows to effect major changes.



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