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<Research>BofAS Downgrades LINK REIT (00823.HK) to Neutral, Lowers TP to $38
Recommend 18 Positive 28 Negative 25 |
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LINK REIT (00823.HK) will announce its full-year results for the year ended March next Wednesday, 29 May. BofA Securities issued a report, downgrading its rating on LINK from Buy to Neutral and reduced its target price to $38 from $44. Although the market is aware that the company is facing retail sales pressure flowing to Shenzhen, there is uncertainty about how long it will take for the situation to stabilise. According to BofAS, the downward adjustment in potential rent reversions may limit LINK's retail rental income in Hong Kong, which in turn will limit the growth in distributable income per unit over the next 1-2 years, with a compounded annual growth rate of minus 1.3% from FY24 to FY26. The broker believed that the company's healthy 12.5% Hong Kong tenant occupancy costs would offset the impact of the significant rental decline, while its valuation would also be supportive. However, the broker did not expect the upcoming inclusion of REITs in the Stock Connect to attract a large amount of southbound buying, as mainland investors already have many choices of high-dividend stocks. Although LINK's Hong Kong shopping malls may be under pressure from FY25 to FY26, BofAS expected its Hong Kong car parks, Singapore shopping malls and Australian assets to grow steadily. Rental rates at the company's mainland shopping malls may see neutral adjustments in FY24, and return to growth in FY25 if the Chinese economy stabilises. BofAS expected LINK's occupancy rate to drop by 1 ppt to 97%, resulting in a 2-3% drop in Hong Kong's retail rental income for FY25 ending March 2025, with a 4% and 7% drop in distributable income per unit in FY25 and FY26 respectively. The broker's current base assumption is that retail sales loss will return to normal in 2025. AAStocks Financial News |
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