JPMorgan has downgraded its rating on LINK REIT (00823) from "Overweight" to "Neutral" but noted that the stock's downside may be cushioned by its projected 6.3% dividend yield for FY2027. The target price was reduced from HK$48 to HK$38.
LINK REIT's management struck a more cautious tone than expected during its interim results briefing for the period ending September, indicating that the operating environment would deteriorate further before bottoming out in the second half. While the bank initially anticipated mid-single-digit percentage declines in renewal rents for the full fiscal year, it now expects the drop to worsen to high single digits in the second half of FY2026. This revision follows an unexpected weakening in Hong Kong tenant sales for LINK REIT during July–September 2025, estimated to have fallen 3% year-on-year, underperforming Hong Kong's essential consumer goods retail sales growth of 3% over the same period.
The report also highlighted that after a 6% year-on-year decline in distribution per unit (DPU) for the first half of FY2026, full-year DPU is projected to drop 8% year-on-year, implying a 10% decline in the second half—partly due to a higher comparable base. With rental income likely to remain under pressure from falling renewal rents in FY2027, JPMorgan also lowered its FY2027 DPU forecast to a 3% year-on-year decline, partially offset by cost-saving measures.
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