Morgan Stanley: Maintains Overweight rating on SWIRE PROPERTIES (01972), with target price lowered to HKD 28.

Morgan Stanley published a research report stating that it maintains an "Overweight" rating on SWIRE PROPERTIES (01972), optimistic about the improvement of the Hong Kong office market fundamentals, with a peak in supply expected in 2026; China's retail sales are resilient, benefiting from trends in duty-free shopping and inbound tourism; the growth of recurring income from new investment properties in China, capital recycling plans, and a strong balance sheet are expected to offset downside risks. The target price was lowered by 3%, from HKD 29 to HKD 28, based on a revised net asset value forecast with a maintained discount rate of 30%, which is one standard deviation higher than the historical average since 2011. The increase in net asset value mainly results from lower net debt, partially offset by a decline in the net asset values of Chinese office and Hong Kong property development projects. The bank stated that, after incorporating the companys performance for the first half of 2026, it raised the basic earnings per share forecasts for the fiscal years 2026, 2027, and 2028 by 2.3%, 1.8%, and 1.5% respectively. The adjustments considered the latest assumptions for retail and office rental renewals, occupancy rates, and interest rates; updated timelines for property development project accounting and completion; as well as revenue from property sales exceeding expectations. Additionally, the forecast for dividends per share for the fiscal years 2026 to 2028 remains unchanged at HKD 1.21, HKD 1.27, and HKD 1.33, representing a year-on-year growth of 5%, benefiting from its continuously growing retail portfolio in China and active capital recycling. The bank expects that, benefiting from sustained high-quality office demand, rental renewals for Hong Kong offices could turn neutral in 2027, while the Pacific Place mall may even turn positive.