Property prices in Hong Kong fell by 15% last year, and the transaction volume dropped by 37%.
Goldman Sachs believes that the current property market demand in Hong Kong is weak and affordability is also weak, but the customs clearance between China and Hong Kong will bring additional demand, and the US interest rate will also peak.
However, the bank also pointed out that based on the continued upward trend of interest rates in the next 3 to 6 months, the decline in land prices reflects further declines in property prices, so the positive effect of the switch will be reflected at a later time.
The bank pointed out that driven by the anticipation of customs clearance between China and Hong Kong, the developer's stock price rebounded by an average of 34% from the end of October last year, but it was still not as good as the 47% increase of the Hang Seng Index.
Among them, developers with higher dividend yields and higher leverage ratios such as Nu Skin World (0017), Henderson Land (0012) and Jiajian (0683) saw relatively large gains.
The bank also adjusted the earnings per share forecast for local real estate stocks from 2023 to 2025, from a decrease of 28% to an increase of 129%, to reflect higher residential property prices, and the latest Hong Kong commercial building prices and mainland residential property prices.
The bank also adjusted the target price of local real estate stocks.
Upgrade Cheung Kong to "Buy"
Goldman Sachs raised the rating of Cheung Kong (1113) from "Neutral" to "Buy", and listed 3 major reasons: faster return of funds and more active capital management, the company has a higher return on equity and/or high return on assets .
In a challenging industry environment, the only real estate developer that will increase dividends and repurchase more than 1% of its share capital.
The company has more diversified sources of income, and 30 to 40% of its earnings before interest and taxes come from infrastructure, public utilities and bar businesses outside China.
Goldman Sachs also maintains Shinsegae's "buy" rating, because the company's debt ratio is the highest in the industry, and it is believed that it can benefit from the peak of the interest rate hike cycle. The switch is also beneficial to K11's shopping mall business.
However, the bank maintained its "sell" rating on Sino (0083), as its net cash positive situation has been reflected in the interest rate hike cycle.