Takeaways from post-results calls
? Link’s management is confident of another year of positive rental reversions
for its malls in HK, supported by a healthy occupancy cost.
? Malls in China are on recovery path after recent lockdowns.
? It appears to be interested in M&As in warehouses in China, apart from the
four overseas countries it quoted before. Reiterate Add with a TP of HK$80.
Expects positive rental reversions for HK malls in FY3/23F
? During our virtual property conference/post-annual results calls, Link’s management
said it is optimistic of achieving positive rental reversions for its HK malls this fiscal
year (FY3/22: 4.8%), saying that the current occupancy cost of 13.1% is comfortable
enough for it to raise base rents.
? Link has increased its budget for Tenant Support Scheme to HK$220m in view of the
fifth wave of Covid-19 outbreak. However, management says the budget may not be
fully used up, as the HKSAR Government’s new Consumption Voucher Scheme (CVS)
works as if it boosts shoppers’ marginal propensity to consume.
? When asked about the impact of the next review of HK’s minimum wage, management
believes an increase in minimum wage (if any) will lead to a boost in mall tenant sales,
as it has observed in previous rounds of upward wage adjustments.
China malls: footfall and retail sales on recovery path
? Management is seeing footfall and retail sales recovery in its shopping malls in China
but the metrics have not yet reached pre-outbreak levels of the latest wave.
? It expects the new Changshu warehouse (acquisition announced last month) will be
fully let in about six months.
More M&A criteria discussed
? On overseas M&As, management still prefers the UK, Australia, Singapore and Japan.
Property pricing is transparent in these countries, according to the management, which
may form partnerships with local firms in Japan and Singapore to acquire assets there.
? Management also believes that the above four countries also offer sufficient protection
to property buyers and that assets there are easy to dispose.
? Management does not rule out further M&As of logistics facilities in China. Apart from
warehouse locations (e.g. Greater Bay Area and Shanghai), management also
regards net cap rates and large tenants as key consideration criteria.
? Acquisition of office towers in China looks unlikely due to its oversupply, according to
management, which is also very cautious of any asset package in China with potential
hidden debt.
Reiterate Add with a TP of HK$80
? Management is committed to HK$150m budget for share repurchase in FY3/23F,
which will be carried out based on market conditions.
? We reiterate Add on Link with a TP of HK$80, based on a 4.03% FY3/23F DPU yield.
? More DPU-accretive M&As are a key re-rating catalyst for Link, while higher-thanexpected increase in interest rates in the US or HK and prolonged lockdowns in
China/HK are key downside risks.