CICC has released a research report initiating coverage on Wharf REIC (01997), assigning an "Outperform" rating with a target price of HK$36, implying a 33% NAV discount, a 5.2% target dividend yield for 2026, and 17% upside potential. The firm believes the company holds high-quality assets, demonstrates strong operational stability, and maintains proactive shareholder returns, offering long-term holding value.
Business focused on core premium commercial assets in Hong Kong
Over the past five years, an average of 90% of revenue and 95% of operating profit came from investment properties and hotel operations, with core base net profit from Hong Kong projects accounting for 96% of the group's base net profit. In 2025, Harbour City and Times Square accounted for 76% and 12% of revenue respectively. By business segment, malls contributed 57% of revenue, offices 24%, and hotels 13%, while profit was primarily driven by malls and offices.
Harbour City boasts strong fundamentals and a solid position, while Times Square gradually absorbs competitive pressure
Harbour City enjoys a prime location, and its shopping mall brings together flagship luxury brands with a standout competitive position, holding solid appeal for both visiting tourists and local customers. CICC expects Hong Kong's economic environment to continue supporting a moderate recovery for the project. Although Times Square mall has clear location advantages, it faces intense regional competition and is currently bottoming out gradually, with retail sales showing signs of stabilization, though rents will still require some time to recover.
Sound financial leverage and proactive dividend returns
The company maintains good financial discipline, with a net gearing ratio of 15.9% in the first half of 2026, a new low since listing. The company has announced dividends based on 90% of core base profit from Hong Kong investment properties and hotels and has actively delivered on this, while its operating cash flow matching profits also effectively supports the dividend base. The certainty of the company's dividend payouts has strengthened, and incremental capital chasing long-term dividend value is expected to further support the share price. Regarding potential catalysts, core project operations are gradually stabilizing, and earnings and dividends may be delivered steadily.
Earnings forecast and valuation
CICC forecasts the company's EPS for 2026-2027 at HK$2.09 and HK$2.20 respectively, with a 2025-2027 CAGR of 4%. The forecast does not yet incorporate the impact of the Marco Polo Hotel's renovation or reconstruction, but the related impact is expected to be manageable, likely in the low single digits. The firm assigns an "Outperform" rating and a target price of HK$36, corresponding to a 33% NAV discount, a 5.2% target dividend yield for 2026, and 17% upside potential. The company currently trades at a 6.1% dividend yield for 2026 and a 42% NAV discount.
Risk factors
Hong Kong's economic and financial activity recovery falling short of expectations; Hibor rates rising more than expected; and competition intensity at the core project Harbour City exceeding expectations.