PRICE as of 9 Jul 2013 HKD 6.81
PRICE TARGET HKD 8.20
A stable income deliverer; expect a healthy set of 1H13 results
We expect Fortune REIT (Fortune) to post a healthy set of 1H13 results on Monday, 15 July, and forecast a DPU of HKD 0.175 (+10.6% YoY).
We believe 2Q13 rental reversions remained healthy (in the mid-teens), after the robust 19.5% in 1Q13. We note reversions are seasonally slower in 2Q-3Q.
Management is likely to give updates on: (1) reversion trend; (2) acquisition opportunities; and (3) progress on asset enhancement initiatives (AEI) during the analyst briefing.
We maintain our Outperform rating and trim our price target from HKD 8.40 to HKD 8.20, representing 20% potential upside, attractive for a low volatility, defensive stock such as Fortune
Expect healthy 1H13 results. Fortune will report 1H13 results on 15 July 2013. We expect an NPI of HKD 428.5mn for 1H13 (+12.2% YoY) and a DPU of HKD 0.175 (+10.6% YoY), driven by reversions/growth from AEI as well as contributions from two new properties (only 4.5 months of contribution in 1H12).
Reversions in mid-teens. We think rental reversions in 2Q13 remained healthy (in the mid-teens), after the robust 19.5% achieved in 1Q13. We note that reversions in 2Q-3Q are usually slower than in 1Q due to seasonal effects from anchor tenant renewals. Management has a mid-teens target for the full year.
Updates from management during 1H earnings. We expect management to address: (1) reversion trend and guidance for 2H13 and the retail sales growth trend in Hong Kong’s suburban retail malls; (2) acquisition opportunities/candidates given the low cost of debt environment; (3) AEI progress at Fortune City One’s wet markets and Ma On Shan Plaza’s ParknShop, and any updates on the AEI plan for Belvedere Square.
Stable yield play; reiterate OP. We reiterate our Outperform rating and trim our price target to HKD 8.20 from HKD 8.40 as we expect higher interest costs from 2015 onwards. Fortune remains our top pick in the Hong Kong REIT space given its earnings resiliency. It is trading at 5.3% 2013E dividend yield versus the 10-year Hong Kong Exchange Fund Note (EFN) yield of 2.45% and Link REIT’s 4.1%. Our price target is 20% above the present level, which we consider attractive for a low volatility, defensive stock such as Fortune.
Publish date: 10/07/13