Hong Kong's MTR target price raised to 26.40 hkd - Merrill Lynch
HONG KONG (XFN-ASIA) - Merrill Lynch raised its target price on MTR Corp Ltd to 26.40 hkd from 23.60 and retained its ""buy"" call on the stock, citing its likely merger with the Kowloon-Canton Railway Corp (KCRC).
The brokerage said MTR's minority shareholders are expected to approve its merger with KCRC at its extraordinary general meeting (EGM) to be held next week on Oct 9.
Merrill noted that MTR's management had met many shareholders over the past few weeks to address their concerns about the merger.
One of the major concerns of minority shareholders is the new Fare Adjustment Mechanism (FAM) expected to be implemented after the merger.
Under the new FAM, transportation fare adjustments will be based on the fluctuation of consumer goods prices, standard of living, operating costs, public affordability and service quality.
But Merrill Lynch reasoned that while MTR would lose some flexibility under the FAM, its implementation should favor the company under the current inflationary environment by reducing the political difficulty it may face when applying for fare increases.
""We do not believe the fixed and variable payment arrangement would wipe off the incremental EBITDA (earnings before interest, tax, depreciation and amortization) accretion from the merger in the longer run as some argue"", the US house said.
""Overall, we still expect its minority shareholders to vote for the deal, serving as a catalyst for MTR's share price performance in the near term"", it added.
The investment bank also cited anticipated strong growth in MTR's retail operations, reflecting the strong retail market in Hong Kong.
HONG KONG (XFN-ASIA) - Merrill Lynch raised its target price on MTR Corp Ltd to 26.40 hkd from 23.60 and retained its ""buy"" call on the stock, citing its likely merger with the Kowloon-Canton Railway Corp (KCRC).
The brokerage said MTR's minority shareholders are expected to approve its merger with KCRC at its extraordinary general meeting (EGM) to be held next week on Oct 9.
Merrill noted that MTR's management had met many shareholders over the past few weeks to address their concerns about the merger.
One of the major concerns of minority shareholders is the new Fare Adjustment Mechanism (FAM) expected to be implemented after the merger.
Under the new FAM, transportation fare adjustments will be based on the fluctuation of consumer goods prices, standard of living, operating costs, public affordability and service quality.
But Merrill Lynch reasoned that while MTR would lose some flexibility under the FAM, its implementation should favor the company under the current inflationary environment by reducing the political difficulty it may face when applying for fare increases.
""We do not believe the fixed and variable payment arrangement would wipe off the incremental EBITDA (earnings before interest, tax, depreciation and amortization) accretion from the merger in the longer run as some argue"", the US house said.
""Overall, we still expect its minority shareholders to vote for the deal, serving as a catalyst for MTR's share price performance in the near term"", it added.
The investment bank also cited anticipated strong growth in MTR's retail operations, reflecting the strong retail market in Hong Kong.
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