UBS: Raises target price for WHARF REIC (01997) to HKD 31.7, maintains "Neutral" rating.

UBS released a research report, raising the target price for WHARF REIC (01997) by 37.8%, from HKD 23 to HKD 31.7, maintaining a "Neutral" rating. The firm has increased its forecast for the company's dividend per share for the fiscal years 2026-2028 by 39-44%, which is the main reason for the target price adjustment, reflecting an increased payout ratio. The company's stock has risen 17% since the announcement of its results for the first half of 2026, when management raised the dividend payout ratio of the net profits generated from its Hong Kong investment properties and hotel operations from 65% to 90%. The firm is encouraged by the higher dividend distribution and the ongoing asset recovery plan (Scotts Square in Singapore). However, given that the current market price reflects an expected dividend yield of 6.4% for the fiscal year 2027, roughly in line with LINK REIT (00823) at 6.5%, the firm believes that most of the positive factors have already been priced in by the market. Considering that WHARF REIC (which is 49% owned by Wheelock) has not shown a significant record in enhancing shareholder returns, the firm finds the sudden increase in its payout ratio somewhat unusual, especially in light of its sister company WHARF HOLDINGS (00004), which has maintained a regular payout ratio of 30%. The firm believes that this divergence in the group's internal capital allocation policy could raise questions about its broader strategic intentions. As a result, the firm remains cautious regarding potential corporate behavior risks, including: 1) the major shareholder reducing its stake; 2) potential asset injections that could lead to equity dilution. These factors may continue to limit the upside potential of the stock price. Additionally, increased competition in Tsim Sha Tsui malls and the company's previous actions remain concerns.