BOCOM INTL: Maintain a buy rating on FORTUNE REIT (00778) and a target price of HKD 5.92.

BOCOM INTL released a research report stating that FORTUNE REIT (00778) will announce its full-year performance for 2025 in early March 2026. Considering the company's operational situation, the impact of fluctuating borrowing costs, and changes in the retail market environment in China and Hong Kong, the bank has updated its financial model and forecast, maintaining a buy rating with a target price of 5.92 Hong Kong dollars. BOCOM INTL's main points are as follows: With the completion of previous asset enhancement projects (+WOO, Wah Do Estate, and Lei King Wan Mall) and the delay of the Plaza Metropolis asset enhancement plan The bank expects an overall improvement in Fortune's rental rate in the second half of 2025. Recently, more specialty dining, new brands, and fitness centers have been introduced into the portfolio, which helps increase foot traffic and reduce the impact of retail industry upgrades. The bank sees a stabilization in retail sales, mainly driven by an increase in tourists boosting sales of core area and non-essential goods Fortune's main tenants serve the essential needs of surrounding residents, some of which are still affected by cross-border e-commerce, with a relatively slow recovery. At the same time, the bank expects significant impacts on rent renewals in 2025 for tenants with higher previous rental rates such as supermarkets. About 50% of the company's debt is floating rate debt, and with the overall HIBOR levels expected to decrease in 2025 compared to 2024, this will help reduce overall financing costs and offset some of the impacts of rental adjustments. Adjustment to income and distribution forecasts Given that the retail market in Hong Kong may still need time to stabilize, the bank slightly lowers Fortune's income and distribution forecasts for 2025-2027, but believes that improvements in the stock market and property performance may bring about wealth effects and help stabilize the market in the medium to long term. The bank predicts that distributions in 2026 and 2027 are expected to grow by approximately 1-2% year-on-year. Target price unchanged, maintaining a buy rating The company's resilience in the Hong Kong retail portfolio focused on essential consumption will likely maintain a high occupancy rate. There is still a probability of further interest rate cuts by the Federal Reserve this year, which may help the company's stock performance. Additionally, the potential inclusion of the Shanghai-Hong Kong Stock Connect will be a key catalyst in the next 12 months, with the impact of interest rate cuts expected to outweigh potential changes in rental adjustments.