Link might change tracks to achieve its $100 goal

Business | Ivan Tong 29 Jul 2019

Shares of Link REIT (0823) have fallen five straight trading days, dropping 4.81 percent to HK$95 last Friday from its historic high of HK$99.8 in July 5.

It appears that its going to be harder for the stock to achieve its goal of trading above HK$100 in the near future.

At a shareholders meeting last week, the company revealed that it is considering a stock split.

If Link approves a one-to-ten stock split, it is quite likely the share will hit HK$10, practically achieving its original goal of HK$100.

Because, given the current price of Link, the minimum investment would be about HK$50,000, and the stock split would boost transactions and attract more investors to enter the market.

Stock splits happen all the time in Hong Kong's stock market.

Here's an example that investors are familiar with. Hang Seng Index heavyweight Tencent (0700) conducted a five-for-one share split to attract small investors at the beginning of 2014, sending its share price soaring to HK$400 from HK$113.5.

The stock split was the market's best success story at the time.

But history does not repeat itself and you can't make bricks without straw.

About two years ago, Tencent reportedly proposed another stock split but the market took the news negatively.

As a leading Real Estate Investment Trust in the market, Link's star will shine brighter if its price breaks the HK$100 mark.

But Link's management team probably understands that just as athletes don't always break records with one big leap, it might be best to achieve it's goal though small steps like a stock split.

REITs are supposed to benefit from expected interest rate cuts, but they have underperformed recently.

Link's 4.81 percent fall seems limited in comparison with its peers.

Fortune REIT (0778) and Champion REIT (2778) were down over 7 percent while Sunlight REIT (0435) fell 5.85 percent from its peaks in July, with Yuexiu REIT (0405) trading relatively flat.

Shares of local REITs have recently seen a similar trend with local property developers and their downward trend could be related to the current unrest in Hong Kong, especially as shopping malls have become high-risk places after clashes broke out at Shatin's New Town Plaza.

The retail industry meanwhile is suffering and declining rents might be a new trend. Therefore, REITs that generate revenues from rents and pay dividends to shareholders will be affected.

However, Link still has a lot of potential and the share price adjustment might provide buying opportunities to investors.

At the meeting, some small shareholders suggested that the SAR government buy back shares of Link and the company should issue a scrip dividend.

Some criticized The Link for using Hong Kong money to invest in mainland business and for turning its back on democracy, while others blamed Chief Executive Carrie Lam Cheng Yuet-ngor's administration for not tackling issues about Link's strategy.

It's clear that the person who suggested the scrip dividend is not well versed with equity operations, because a scrip dividend means that the company will have to issue new shares, which will be negative to the share's price as it dilutes the value of the stock.

From the point of supporting the share's price, it is better to distribute cash dividends or let shareholders decide whether to increase their shares or not.

Asking Lam to restrict Link's mainland business, meanwhile, is downright ludicrous. Also, the government is currently grappling with unprecedented protests triggered by the extradition bill and has more burning issues to deal with than Link's problems. Such suggestions are frivolous and a waste of time.

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