Hong Kong is known for having one of the most famous bus brands in Asia. If you’ve ever visited the city, you’ve probably taken a ride on a bright red KMB double-decker bus.
The company behind this well-known brand is Transport International Holdings (SEHK: 0062). It has been helping locals and tourists travel around Hong Kong for more than 90 years.
Since the COVID-19 pandemic, shares have been struggling. Yet, this year its shares now have recovered close to 33%.
In fact, Transport International now trades at ~7% dividend yield. This is five things you need to know about Hong Kong’s monopoly bus operator.
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1. Transport International: Inside Hong Kong’s biggest bus operator
Transport International Holdings is best known for running The Kowloon Motor Bus Company, also called KMB.
Now, KMB is the biggest franchised bus operator in Hong Kong. It carries more than 2.5 million passenger trips every day, which is huge.
The company operates over 4,000 buses on 444 routes, serving areas across Kowloon, the New Territories, and Hong Kong Island.
With more than 11,000 workers — including about 8,700 bus drivers – KMB is a major employer in the city.
Furthermore, Transport International also owns Long Win Bus (LWB), which runs buses to Hong Kong International Airport and North Lantau.
LWB helps travelers get between the airport and different parts of the New Territories.
Both KMB and LWB make up the main franchised bus business for Transport International. This is Hong Kong’s transport giant’s “bread and butter”, contributing to a large part of the company’s revenues.
But there’s more to this company than just buses.
2. Quiet growth driver – property assets
Over the years, Transport International has also been developing properties, focusing on commercial offices, shopping malls, and investment properties.
Its standout project is The Millennity in Kwun Tong, developed jointly with Sun Hung Kai Properties – the company’s largest shareholder.
The Millennity features two 20-story Grade-A office towers with 650,000 square feet of space, and a 500,000 square-foot shopping mall similar in size to the well-known APM mall.
Meanwhile, its office towers have secured major tenants, and the mall is set to open soon, adding a new source of rental income.
The company’s property division builds on past redevelopment experience, such as Manhattan Hill in the 2000s.
This is where an old Kowloon bus depot was transformed into a housing project that generated significant cash for future developments.
3. Transport International’s steady revenues – but profit margins under pressure
Here’s the thing: Hong Kong’s bus fares are highly regulated, and adjustments require approval through a lengthy government process.
What’s more, bus companies cannot freely raise fares just to keep up with rising operating costs.
Instead, any fare revision must undergo administrative procedures and legislative scrutiny – often taking more than a year for approval.
Even then, only about three-quarters of the requested fare increase is usually approved.
Furthermore, the company cannot easily change bus timetables, even if some routes operate at a loss.
This regulatory framework means Transport International’s bus operations rely heavily on two main factors: the number of passengers and the price of fuel.
Since fare increases are capped, rising fuel costs directly impact profitability. Its Transport International’s focus is to grow its passenger volume.
During the first half of the year, oil prices fell. And the recent fare increase took effect. Both higher fares and lower oil prices have led to Transport International’s net profits soared about four times.
Still, the franchised bus business has struggled to keep up with operating costs.
As a result, Transport International has diversified into property development.
The thing is, its bus operations business hit a 5% net profit margin.
During weaker periods, the margin can fall to just 1% or 2%, or even lower. In contrast, its property development business produces ~50% profit margin.
This number does not yet include the possible income from the new Millennity shopping mall, which I’ll explain in a bit.
So even though the property development business makes less than 10% of total revenue, its profit can be about the same as the bus operations.
In other words, its property assets are lower revenues, but high margin business.
4. Transport International’s 26 years of uninterrupted dividends
During the COVID-19 pandemic, Transport International suffered badly, together with most transport companies worldwide.
However, the company continued to pay dividends in 2020 and 2021, despite the company’s losses – HK$0.70 per share in 2020 and HK$0.50 per share in 2021.
This shows management’s commitment to reward shareholders over the years, especially during hard times.
In 2023 and 2024, the company continues to pay dividends of HK$0.80 and HK$0.50 per share respectively.
In fact, Transport International has paid dividends for 26 straight years, reflecting its dedication to consistent shareholder returns.
Transport International has been careful when making business decisions.
Currently, the company has ~HK$2.1 billion in cash, which it plans to reduce its debt.
In my view, this should be more than enough to maintain a consistent dividend of ~HK$0.50 per share, which is around 5% dividend yield. Not too bad.
5. The Millennity Mall could be a game changer
The biggest growth opportunity for Transport International is the opening of The Millennity shopping mall in Kwun Tong.
As I’ve said earlier, this massive shopping mall is comparable to APM, one of Hong Kong’s popular shopping destinations.
The office towers at The Millennity are already operational and generating rental income. But the real excitement is for the shopping mall, which is scheduled to open soon.
Once fully operational, I believe this will provide a significant boost to the property division’s recurring rental income.
My final thoughts
Transport International Holdings is a unique Hong Kong dividend stock with two distinct businesses.
First, its bus operations provide stable revenue but modest margins. Next, its property portfolio generates high-margin income and holds significant long-term value.
The thing is, the company has shown remarkable resilience by maintaining dividends even though the COVID-19 pandemic has forced most transport operators worldwide to bleed cash.
In a way, this says a lot about management’s shareholder-friendly approach.
At 7.3% dividend yield, Transport International is trading at a high dividend payout, especially as interest rate cycles are peaking.
What’s more, with The Millennity shopping mall opening soon, there could be potential growth for dividends ahead.
