Jinwu Financial News | BOCOM INTL issued a research report indicating that by market cap, Fortune Real Estate Investment Trust (00778) is currently the third largest REIT listed on the Hong Kong Stock Exchange. As of the first half of 2024, Fortune Real Estate Investment Trust has an approximately 3 million square feet retail investment portfolio focused in Hong Kong, with over 72% of tenants belonging to the necessity goods sector.

The bank believes that Fortune Real Estate Investment Trust has multiple investment advantages and stock price drivers, including stable earnings outlook, low valuation, further interest rate cuts, and the potential inclusion in the Stock Connect which would benefit the valuation of REITs. The bank believes the rental income outlook for Fortune Real Estate Investment Trust can remain basically stable. Meanwhile, the current stock price corresponds to a 2025 dividend yield of 9.4%, which is approximately 1.1 standard deviations lower than the long-term average gap with the 10-year US Treasury yield. The bank believes the current valuation remains well below its long-term average and has reflected most concerns of the Hong Kong retail market. Although high interest rates will still have a negative impact on 2024 earnings, the bank expects the dividend per unit to begin to recover growth starting in 2025 under continuous interest rate cuts. The bank anticipates its dividend per unit will decrease by -10.0% in 2024, then grow by 3.8% in 2025 and 4.1% in 2026 to 36.34/37.71/39.26 Hong Kong cents.

Initiate coverage on Fortune Real Estate Investment Trust with a Buy rating. Based on the fair value derived from the DDM model, plus a 30% liquidity discount, the target price is set at 5.86 Hong Kong dollars.