Here are 2 factors that will back-up MTR’s momentum in 2013

Still positive amid fare-adjustment mechanism buzz.

According to Nomura, consistent with its positive thesis, MTR’s share price had risen by 21% in 2012, largely in line with MSCI-HK Index and the Hang Seng Index. In coming weeks, the share price might be affected by noises around a review of its fare-adjustment mechanism (FAM). 

Nomura believes that once this review is completed (by Mar-13, we estimate), investors will refocus on two structurally-positive factors: (1) four new railway lines to be completed over 2014-15 in Hong Kong, which by our estimate, will generate 15% more passengers and add HKD2.6/share to NAV; (2) growing momentum for its mass retail rents, driven by an increasing number of mainland visitors shopping at suburban locations, and an upgrade in the tenant mix towards more retailers of branded apparels, jewellery, health and beauty products. We raise our 2013F EPS/NAV estimates by 4%/7% to factor in the likely contributions from the four new railway lines and higher kiosk rents.

Here’s more from Nomura:

We expect further upgrade to consensus earnings estimates upon: (1) the completion of its FAM review – this will remove a share price overhang and should allow MTR continue raise fares under inflationary conditions. We currently assume zero fare adjustment from 2013F onwards; (2) the pre-sale of Austin Station project (mid-13F) – our 2014F EPS is 16% ahead of consensus. Valuation: TP raised by 7% to HKD36.7; maintain Buy Post our NAV estimate revision, we also raise our TP to HKD36.7 (from HKD34.2), still based on the historical average 14% NAV discount.