Damo: Maintaining Swire Properties' (01972) “Plus” Rating and Lowering Target Price to HK$28

The Zhitong Finance App learned that Morgan Stanley released a research report saying that maintaining the “gain” rating of Taikoo Properties (01972) and is optimistic about improving the fundamentals of Hong Kong office buildings. The peak supply is expected to occur in 2026; retail sales in Chinese shopping malls are resilient and benefit from duty-free shopping and inbound travel trends; and recurring revenue growth, capital cycle plans, and strong debt balance sheets from newly invested properties in China are all expected to offset downside risks. The target price was lowered by 3% from HK$29 to HK$28, maintaining a 30% discount rate based on the revised net asset value forecast, which is one standard deviation higher than the historical average since 2011. The increase in net asset value was mainly due to lower net liabilities, partially offset by the decline in net asset value of office buildings in China and property development projects in Hong Kong.

The bank said that after incorporating the company's results for the first half of 2026, it raised its basic earnings per share forecast for the 2026, 2027 and 2028 fiscal years by 2.3%, 1.8% and 1.5%, respectively. The adjustment factors include the latest assumptions on retail and office rent renewal adjustments, occupancy rates and interest rates; updated entry and completion times for property development projects; and higher-than-expected returns from property transactions. Furthermore, the company's dividend forecasts for the 2026-2028 fiscal year remained unchanged at 1.21, 1.27 and 1.33 yuan, respectively, equivalent to a 5% year-on-year increase in the 2026-2028 fiscal year, benefiting from its continued growth in China's retail portfolio and positive capital cycle. The bank expects that due to continued demand for high-quality office buildings, the rent renewal adjustment for Hong Kong office buildings is expected to become neutral in 2027, while Pacific Place Shopping Mall is more likely to turn positive.