Golden Sovereign Finacial News | ICBC International issued a research report stating that Link Real Estate Investment Trust (00823) held a conference call last week and released the first quarter (April-June) business data for the 2025 fiscal year. The retail sales in Hong Kong shopping malls decreased by 5.9%, slightly better than the overall retail market in Hong Kong which decreased by 9.9%. Dining/supermarkets, food/general retail decreased by 1.5%/5.9%/9.4%, while the data for the 2024 fiscal year was 4.6%/-5.1%/1.3%. The bank believes that the current downward interest rates will ease the pressure on owner payments and the positive wealth effect brought by the rise in the stock market should be able to offset the negative wealth effect caused by the decline in house prices. The company's retail sales may bottom out in the next 3-6 months, with a total expected decline of 8-10%. Renewal rental adjustment rate is expected to decrease by about 3-5% in the end.
The bank pointed out that although the rents of Hong Kong investment portfolios may decline, the bank believes that Link could counteract the impact of rent decline through repurchasing or mergers and acquisitions. Assuming the company utilizes the debt ceiling set by the company, i.e., net debt ratio rises from 19.5% to 25%, Link can use up to 8 billion Hong Kong dollars to repurchase approximately 0.2 billion shares, or 8% of the share capital (the bank's basic forecast is 1.5% per year), enough to generate a potential DPU growth of up to about 8%. The company is also preparing to enter overseas markets and has already established a local team in Japan to search for investment targets.
The bank further mentioned that the company's rebound lags behind the market by 27% and peers by 22%, possibly due to REIT not being included in the Hong Kong Stock Connect. It is expected that the Hong Kong Stock Connect will be an important catalyst for the company's stock price. The target price has been raised from HK$43 to HK$45. Maintaining an 'outperform the market' rating.
