The Motley Fool

How Did MTR Shares Perform During SARS?

As I’m sure many readers will already know, SARS (severe acute respiratory syndrome) is a viral respiratory illness. The SARS coronavirus also happens to be in the same family of viruses as the Wuhan coronavirus outbreak that is currently hitting China and other countries around the world.

Just as this coronavirus outbreak is doing now, SARS severely affected consumer behaviour. When the illness arrived in Hong Kong in 2003, many people stayed indoors more and spent less. It wreaked havoc on Hong Kong’s economy, particularly in the tourism and travel sectors.

Given the similarities between the two, some investors worry that the Wuhan coronavirus could potentially be a replay of SARS. There are reasons to be less bearish. The containment methods around the world could slow the spread. A vaccine for the coronavirus could also be developed sooner than expected.

Yet there are also reasons for caution. The outbreak is harder to contain and it will take more resources to solve this time. The market could price in some potential negative effects of the Wuhan coronavirus even before they actually occur.

Given the similarities between the current coronavirus and the SARS coronavirus, the question that could be on many investors’ minds is; how did Hong Kong subway operator and commercial land developer MTR Corporation Limited (SEHK: 66) fare during SARS?

Effect of SARS on financial results

According to the US-based Centers for Disease Control (CDC), the first known case of SARS in Asia occurred in February 2003. The disease spread and lasted for approximately six months before being contained in July 2003.

SARS had an impact on MTR. According to the subway operator’s 2003 annual report, SARS severely affected patronage, curtailed property activity, and reduced non-fare revenues.

The negative impact of SARS and bus competition led to a 4% decline in sales from railway operations. Total patronage of MTR lines decreased by 0.9% and total patronage on the Airport Express declined by 19%.

According to MTR, “during the peak months of SARS, ridership fell by up to 25% as economic and social interaction in Hong Kong became severely curtailed.”

Although the peak months of SARS were bad for MTR, the effect proved to be short term. By the end of 2003, MTR’s overall rail patronage and non-fare revenues rebounded to normal levels as consumer behaviour returned to normal.

In terms of its financial cost, SARS wasn’t something that really hurt MTR. For the year, MTR’s earnings per share actually rose 21.4% year-on-year as net income rose due to significant property development profits.

Stock price reaction to SARS

Although MTR’s operations were negatively affected by SARS, shares of MTR actually rallied during the outbreak. From 2 February 2003 to 27 July 2003, shares of MTR rallied from HK$8.70 to HK$9.30.

Given the stock reaction, it seemed like the stock market treated SARS as a short-term event that wouldn’t affect MTR’s long term fundamentals.

The stock market’s reaction proved right as shares of MTR would later rally much higher since then. Currently, MTR trades for around HK$45 per share and yields around 2.6% at current prices.

Foolish conclusion

Overall, we can see that SARS was a short term event for MTR, and the outbreak did not affect MTR’s long term fundamentals.

Discover the 1 stock that is set to DOMINATE this HK$1.2 trillion market opportunity and why investors think it could be the next Amazon of its industry. Just click here to download our FREE report now.

The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Hong Kong contributor Jay Yao doesn’t own shares in any companies mentioned.