FVE Unchanged After MTR’s Fare Adjustment Mechanism Review

Our fair value estimate for narrow-moat-rated MTR is unchanged at HKD 42 as we finetune our fare growth assumptions following the company’s fare adjustment mechanism, or FAM, review. We believe the updated FAM calculation and the increase in the minibus interchange discount have a minor negative impact on fare growth in the next five years. In addition, 2023 fare growth will be further pressured by the deferral of the 0.2 percentage point fare adjustment and 1.65 percentage points accumulated fare increase (cut from 2.85%) under the affordability-linked arrangement to 2024. That said, we think the overall impact on transport revenue is minimal, and we continue to expect the reopening of borders to drive recovery in the company’s recurring earnings.