MTR: Net Tourist Outflow Partly Offset by Stronger Cross-Boundary Operations and New Mall Opening

Our fair value estimate of HKD 38.50 per share for narrow-moat MTR is unchanged after attending its pre-blackout meeting. In the near term, we think net tourist outflow would weigh on tenant sales at MTR’s station kiosks and shopping malls, as well as domestic transport operations ridership. Airport Express performance will also be limited by a slow flight capacity recovery. We expect these to be partly offset by stronger high-speed rail and cross-boundary transport operations with the ongoing northbound travelling trend, where part of the Hong Kong population visits Shenzhen regularly for cheaper goods and services. Over the long term, we continue to expect MTR to benefit from gaining market share from other public transportation modes as the company continues to expand its railway network. We think the shares are undervalued currently, at a 36% discount to our fair value estimate.