JP Morgan downgrades LINK REIT (00823) to "Neutral" with a target price lowered to HK$38.

JPMorgan Chase released a research report stating that the rating for LINK REIT (00823) has been downgraded from "overweight" to "neutral", but believes that the downside of the stock price may be supported by a forecasted dividend yield of 6.3% for the 2027 fiscal year. The target price has been reduced from HK$48 to HK$38. The tone of the Link management team at the mid-term performance briefing at the end of September was more cautious than expected, stating that the operating environment will slightly deteriorate before bottoming out in the second half of the year. Although the bank originally expected the full-year renewal rental to decrease by a low single-digit percentage, it is now expected that the decline in renewal rental in the second half of the 2026 fiscal year will worsen to a high single-digit percentage, mainly due to the unexpected weakening of sales for Link Hong Kong tenants in July to September 2025, estimated to be a 3% year-on-year decline, underperforming compared to a 3% increase in essential consumer goods retail sales in Hong Kong. The report indicates that after a 6% year-on-year decline in Distribution per Unit (DPU) in the first half of the 2026 fiscal year, the full-year DPU for the 2026 fiscal year is expected to decrease by 8% year-on-year, meaning a 10% year-on-year decline in DPU in the second half of the 2026 fiscal year, partly due to a high comparison base. As the decline in renewal rental is likely to continue to drag down rental income for the 2027 fiscal year, the bank has also revised down its 2027 fiscal year DPU forecast to a 3% year-on-year decline, partially offset by cost savings from employee expenses.