Transferring Coverage of MTR With HKD 42 FVE; Border Reopening Drives Recovery

We are transferring coverage of MTR, with narrow moat and stable moat trend ratings. We have lowered our fair value estimate to HKD 42 per unit from HKD 45, following an update to our model assumptions and factoring a higher near-term cost of debt from future interest rates hikes. Our fair value estimate implies a price/book ratio of 1.5 times. In our view, the reopening of the Hong Kong and China borders and resumption of cross-boundary travel and duty-free business will support a strong recovery in the revenue and earnings contribution of its core recurrent business. However, we think the positive outlook has been priced in, given the run-up in its share price toward the end of 2022, and we see the company as fairly valued currently.