On Friday, Jefferies upgraded Sino Land (83:HK) (OTC: SNLAY) stock from Hold to Buy, adjusting the price target to HK$9.30 from the previous HK$9.00. The revision follows the recent US election results, which influenced the USD and long-term yields.
Despite a recent rate cut by the Federal Reserve, Jefferies anticipates a neutral impact on the residential market, as mortgage rates have already adjusted with new fixed-rate mortgage deals being offered as low as 3.1-3.2%.
The analysis by Jefferies suggests that the cost of equity (CoE) repricing in the sector may see limited movement in the near term due to the stickiness of long-term yields. The firm also noted that previously rate-insensitive stocks could now catch up, especially those with comparatively decent yields. In the retail landlord space, yields generally range between 6-7%, but the strengthening of the USD might create additional pressure through sales leakage.
In the short term, Jefferies favors Hong Kong landlords with retail exposure in China, such as Swire and Hang Lung, over others. They predict that non-discretionary retail will likely be more resilient than discretionary sectors, giving an edge to companies like Link over Wharf REIC. Jefferies also pointed out that developers had outperformed landlords due to increased transactions, but had previously downgraded Sino Land in August due to its insensitivity to rate changes.
After a period of underperformance, Sino Land now presents the highest yield among developers at 7.3%, compared to peers like SHKP and CKA with around 5%, and Henderson with approximately 7%. According to Jefferies, Sino Land is uniquely positioned to benefit from the improving residential market, driven by lower mortgage rates, and the sustained interest income due to sticky long yields. This perspective has led to the upgrade of Sino Land back to a Buy rating.
InvestingPro Insights
Jefferies' upgrade of Sino Land aligns with several key metrics and insights from InvestingPro. The company's attractive valuation is highlighted by its low Price / Book multiple of 0.41, supporting Jefferies' view on the stock's potential. Sino Land's significant dividend yield of 9.82% further reinforces its appeal to investors seeking income, especially in the current market environment where yields are highly valued.
InvestingPro Tips reveal that Sino Land has maintained dividend payments for 33 consecutive years, demonstrating a strong commitment to shareholder returns. This consistency aligns with Jefferies' emphasis on the company's high yield compared to its peers. Additionally, the tip indicating that Sino Land is a prominent player in the Real Estate Management & Development industry supports its potential to benefit from the improving residential market, as noted by Jefferies.
For investors seeking a deeper understanding of Sino Land's financial position and market performance, InvestingPro offers 9 additional tips, providing a comprehensive analysis to inform investment decisions.
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