Xiaomo: Retail sales in Hong Kong improved slightly in August, maintaining the “increase” ratings of Lingzhan Real Estate Fund (00823) and Jiulongchang Real Estate (01997)

The Zhitong Finance App learned that J.P. Morgan Chase released a research report saying that the year-on-year increase in retail sales in Hong Kong accelerated slightly to 6% in August (5% increase in July), mainly supported by strong growth in electrical products. Looking ahead, the number of visitors to Hong Kong increased by 22% year on year in September (partly affected by the lower base, as typhoon signals No. 10 and No. 8 were issued at the time). The bank expects retail sales in Hong Kong to record medium to high year-on-year growth in retail sales in September this year. The bank maintained the “overholding” ratings for Lingzhan Real Estate Fund (00823) and Kowloon Wharf Real Estate (01997), with target prices of HK$43 and HK$35.7, respectively.

The bank pointed out that the year-on-year increase in retail sales of necessities moderately accelerated to 4% in August (3% increase in July), and has recorded positive growth in the number of low to medium units for 17 consecutive months; with the trend of cross-border e-commerce penetration stabilizing (but no decline), retail sales of necessities are expected to continue to recover moderately. The year-on-year increase in retail sales of non-essential goods accelerated slightly from 6% in July to 7% in August, mainly driven by abnormally strong growth in electrical products (up 29% year on year) and precious jewelry items (up 12% year on year). By category, the top performers included durable consumer goods (up 14% year on year in August), jewelry and precious gifts (up 12%), and other consumer goods (up 8%); the underperformers were fuel (down 12%) and department stores (down 3%).

The bank is optimistic about the lead because: (1) spot rents are stabilizing, and rent adjustments for the fiscal year ending March 2028 are expected to improve; (2) the dividend rate is 6.9%; (3) it is expected to be incorporated into connectivity in the first half of 2027, and there are upward risks brought about by the capital cycle and the potential new strategy of the new CEO (who took office in March 2027). However, the bank also pointed out that the recent recovery in 10-year treasury bond yields (now above 5%) may put short-term pressure on REITs as a whole. As for the nine units, Motong believes that Harbour City tenant sales will maintain positive growth in the second half of 2026 and record positive rent adjustments in 2027; the Hong Kong dollar continues to depreciate or support tourist consumption (however, if HIBOR increases, there is also a downside risk in profits).