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HK's MTR poised to rally after Goldman 'buy' recommendation

Shanghai

MTR Corp is poised to recover quickly when Hong Kong's situation eventually settles, after months of protests in the city saw its passenger numbers and stock price plummet.

That's the view of Goldman Sachs Group Inc analysts, who have upgraded the stock to buy from neutral. In a research note looking at Hong Kong conglomerates, Goldman said MTR had the ability to recover more rapidly than other companies from the impact of the unrest. It warned, however, that normalisation would depend on how long the current situation continues. MTR shares jumped 3.8 per cent, the most since Sept 4.

Shares of the rail operator - once one of Hong Kong's safest stock bets - have fallen almost 20 per cent from a record high in July as violent clashes escalated. Much of the unrest has taken place in and around MTR stations, leaving them badly damaged and covered in graffiti. Traffic on the metro system slid by the most on record last month as MTR closed lines early and suspended train services.

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MTR has six buy, three hold and two sell ratings, according to data complied by Bloomberg.

"As the monopolistic railway company capturing half of public transportation traffic," MTR should see traffic recover quickly as the situation in Hong Kong improves, analysts led by Simon Cheung wrote in a note on Wednesday. They cited the 2003 SARS epidemic as an example where MTR patronage rose by 2 per cent in July that year after dropping 20 per cent in April.

MTR caters towards domestic spending, unlike travel-related businesses that depend on tourist arrivals, which might take longer to recover, the analysts said, adding that the company has also locked in profits on property sales and may see some upside from rail expansion plans.

Hong Kong's situation remains unclear, however. Leader Carrie Lam did not make any new concessions to protesters after pro-democracy forces won a landslide in local elections, a move that risks leading to further violence.

In the same report, Goldman analysts said they remain cautious on Hong Kong's retail and office sectors and revised lower earnings estimates for conglomerates under coverage, warning of an additional earnings impact of as much as 8 per cent if protests persist for another six months. In the note, Goldman said it sees more downside risks for Wharf Holdings Ltd, Swire Pacific Ltd and Jardine Matheson Holdings Ltd. BLOOMBERG