Summary of Key Points
MTR’s revenue decreased slightly in the first half of the year (-4.1%), but its net profit doubled (+105.9%). The key factor was the substantial contribution from its property development division, which accounted for nearly 80% of the profits. However, despite an increase in passenger volume on its main transportation services, the profit did not increase; in fact, it even suffered losses. Subway companies on the Chinese mainland are eager to emulate MTR’s “rail + property” model, but difficulties such as differences in land acquisition mechanisms, passenger density, and corporate roles make full replication challenging. The MTR model also has its drawbacks, including the potential for one-time profits from property sales and a reliance on the real estate market cycle.
I. The Secret to Doubling Profits: Concentrated Revenue from Property Development
MTR’s profit-making strategy revolves around the “rail + property” approach: it acquires land along the railway lines at low prices authorized by the government (based on the land values before construction begins). Once the subway is operational and the area becomes more developed, the land appreciates in value, allowing MTR to develop residential properties and shopping malls for profit, which in turn subsidizes the maintenance and operation of the subway system.
In the first half of this year, two residential projects above the stations of Tai Wai and South Island South Phase 5 were completed, generating a post-tax profit of HK$12.2 billion—accounting for nearly 80% of MTR’s core business profits and doubling its net profit. MTR itself notes that these funds are one-time gains and not recurring annually, primarily used to support subway maintenance and construction.
MTR has several additional property projects in the pipeline: Phase 2 of Kam Shui Road Station has been approved, Tuen Mun projects are under bidding, and two new projects (with a total of 8,000 units) are planned for the coming year. The sixth phase of South Island South is also set to generate revenue in the second half of the year, providing short-term support for MTR’s property income.
II. The Main Transportation Business: More Passengers, but Less Profit
MTR’s subway service saw a 1.2% increase in passenger volume (to a total of 975 million trips) this year, and the high-speed rail section in Hong Kong reached a new high for the same period (16 million trips). However, its profitability has declined:
- The local subway operation lost HK$141 million this year, compared to a profit of HK$98 million last year. The reasons include higher costs (due to increased maintenance and equipment depreciation) and higher non-fixed payments to the government, while ticket prices have not been raised for two years, squeezing MTR’s profit margin.
- Station-based commercial activities (such as rental income from shops) have also performed poorly, with total revenue declining and new lease agreements resulting in a 6.7% reduction in profits.
In short, the subway business is becoming increasingly unprofitable despite higher passenger numbers due to increased costs.
III. Mainland Subways Are Copying MTR’s Model, but How Well?
Mainland subway companies are generally losing money and are trying to adopt MTR’s approach of using land to fund their operations:
- Guangzhou Metro’s property revenue is expected to reach HK$17.18 billion in 2025, accounting for more than half of its total revenue, making it the second-largest source of income among state-owned enterprises.
- Shenzhen Metro’s “station-city integration” strategy generates 35% of its profits.
- Chengdu Metro’s profits in the first half of 2025 mainly came from station development.
However, these efforts only superficially resemble MTR’s model; mainland companies’ property income is still supplementary and does not form a complete cycle like MTR’s.
IV. Why Is the MTR Model Difficult to Replicate?
There are three fundamental differences that make it hard for mainland companies to replicate MTR’s success:
1. Different Land Acquisition Costs: MTR acquires land at low prices authorized by the government before construction, while mainland subway companies either rely on government allocations or have to compete in public auctions, resulting in much higher land prices and reduced profits from land appreciation.
2. Significant Differences in Passenger Density: Hong Kong’s subway system has an average of 250,000 passengers per kilometer per day, compared to less than half in most mainland cities. Lower passenger volumes mean lower ticket revenue, making it more dependent on property development for profits, which often do not generate as much as MTR does.
3. Different Corporate Roles: MTR acts as a resource integrator, collaborating with developers to diversify risks; mainland subway companies, on the other hand, often take on all the risks associated with real estate development, such as potential losses if properties fail to sell.
V. The Risks of Relying on Property Development
MTR’s impressive financial performance hides potential vulnerabilities:
- Property profits are one-time gains; what was earned this year may not be repeated next year.
- The real estate market is highly cyclical, and poor performance could lead to reduced property sales or lower profits, affecting MTR’s overall earnings.
For mainland companies, “rail + property” can serve as a supplementary revenue source, but they should not rely solely on it. After all, the core of subway operations remains transportation, and over-reliance on real estate increases financial risks.
(The entire analysis is presented in plain language, making it easy for non-financial professionals to understand MTR’s profit-making strategy and the current situation of mainland subway systems.)