HSBC Research raises LINK REIT's target price to HKD 44.6, rating "Buy"

HSBC Research published a report indicating that investors are increasingly positive about the potential inclusion of REITs in the Hong Kong Stock Connect, which helps support the valuation of LINK REIT (00823.HK). Additionally, the decline in borrowing costs and improvement in tourist spending also contribute to the company's ability to maintain the resilience of its distribution per fund unit.

LINK REIT's stock price surged 7% the day before (7th), with the bank believing the main reason is the positive comments made by CSRC Chairman Wu Qing regarding the future inclusion of REITs in the Hong Kong Stock Connect, prompting investors to start positioning themselves. In a "bull market" scenario, if included in the Hong Kong Stock Connect and exempt from dividend tax, LINK REIT's stock price could potentially have an upside of 37%. The bank noted improvements in LINK REIT's fundamentals, declining borrowing costs, and resilient retail business. If U.S. interest rates are lowered, it would provide further support to LINK REIT, as the bank's U.S. economist expects the Federal Reserve to cut rates by 75 basis points in the second half of this year.

HSBC Research mentioned that the HIBOR has sharply declined in the past month, dropping from about 4% at the end of April to approximately 2.1% recorded yesterday (8th). As of the end of September last year, LINK REIT's borrowing cost was about 3.7%, with fixed-rate debt accounting for about 66%. The bank's interest rate analysts believe there is a significant downside risk for HIBOR in the future, coupled with recent monetary easing measures in the mainland, which are expected to help reduce LINK REIT's financing costs.

The bank has raised its forecast for the company's distribution per unit for the fiscal year 2026 to 2027 by between 0.3% and 1.1%. The target price has been increased from HKD 41.6 to HKD 44.6, maintaining a "Buy" rating