EUR 850.00 For Business Accounts Only

Morningstar | High-Quality Rail Assets and Unique Business Model Underpin Competitive Advantages for MTR

Established in 1975, MTR is the sole rail operator in Hong Kong following the rail merger with Kowloon-Canton Railway in 2007. It operates a predominantly rail-based transport system, comprising domestic and cross-border services, light rail, and the Airport Express, a dedicated high-speed link to Hong Kong International Airport. With an average weekday patronage of more than 5.8 million passengers and growing, the firm is one of the world’s busiest rail operators. MTR differentiates itself from traditional rail operators with its "rail- plus-property" funding model. It is given the rights for property development along the rail corridor as a government incentive to induce construction. The high-quality rail network and unusual business model of rail plus property are MTR's key strengths, underpinning our narrow economic moat rating.MTR is experienced in building sustainable returns via integrated rail transport and property development. The firm benefits from land development rights, allowing for substantial value uplift on previously underutilized land, as part of its total return formula. In the past decade, the property development business averaged 25%-30% of total assets, which helps to boost overall returns. Rail network expansion is the key growth driver. A growing rail network will support steady patronage growth, boost traffic for the firm’s rental business, and provide property development opportunities. Growth opportunities remain in Hong Kong with several line extensions over the next 10 years and its operation has gained market share from other modes of public transport in Hong Kong. MTR has also started investing outside Hong Kong, building on its existing offshore operation.MTR's overseas expansion remains in the early stages, with total asset contribution averaging about 10% over the past three years. While city rail projects in China present good opportunities, MTR is likely to face less favorable regulatory treatment, and state-owned enterprises as their competitors, will accept lower returns on projects. Its international rail operations include operation and management concessions in the U.K., Sweden, and Australia.