[ET Net News Agency, 23 February 2018] BofA Merrill Lynch lifted its target price for
MTR Corporation (00066) to HK$42.5 from HK$41, and reiterated its "underperform" rating on
unattractive valuation.
The research house fundamentally believes demand for MTRC's rail operations remains
stable, but its inability to offset cost growth with fare hike under the Fare Adjustment
Mechanism (FAM) suggests margin pressure may persist near term.
Medium term, there is some risk that MTRC may have to bear a small portion of the
construction cost overrun at Shatin-Central Link. The stock is trading at a 2% discount to
its FY2018 NAV (versus historical average of 14%) and above-peers 30x FY2018 P/E.
BofAML expects MTRC to report 3% increase in core net profits to HK$9.75bn
(HK$1.65/share) helped by property development (PD) profits from Tiara in Shenzhen.
Excluding PD profits, BofAML expects recurring income to drop 1% to HK$8.8bn.
It lifted its FY2017-18 EPS forecasts by 1% on higher profit in kind from KCRC PD
projects and FY2019 EPS by 4% on higher residential ASP assumed (expected recognition of
LOHAS Park Ph.4). (KL)