Hwa Hong Corporation Limited (SGX:H19), a S$218.74M small-cap, is a real estate company operating in an industry which displays attractive investment characteristics relative to other sectors, especially over time. Real estate analysts are forecasting for the entire industry, negative growth in the upcoming year . Below, I will examine the sector growth prospects, and also determine whether Hwa Hong is a laggard or leader relative to its real estate sector peers. See our latest analysis for Hwa Hong
What’s the catalyst for Hwa Hong’s sector growth?
Not every category of real estate is likely to be impacted the same by macroeconomic factors such as interest rate hikes, and not all locations are primed to grow. So, investors must remain cautiously optimistic and analyse the fundamentals of the underlying industry. Over the past year, the industry saw growth of 9.81%, though still underperforming the wider Singapore stock market. Hwa Hong leads the pack with its impressive earnings growth of 12.75% over the past year. This proven growth may make Hwa Hong a more expensive stock relative to its peers.
Is Hwa Hong and the sector relatively cheap?
The real estate industry is trading at a PE ratio of 12.17x, in-line with the Singapore stock market PE of 14.27x. This means the industry, on average, is fairly valued compared to the wider market – minimal expected gains and losses from mispricing here. Furthermore, the industry returned a similar 6.66% on equities compared to the market’s 7.77%. On the stock-level, Hwa Hong is trading at a higher PE ratio of 29.65x, making it more expensive than the average real estate stock. In terms of returns, Hwa Hong generated 3.76% in the past year, which is 2.91% below the real estate sector.
Next Steps:
Hwa Hong recently delivered an industry-beating growth rate in earnings, which is a positive for shareholders. However, this higher growth is also reflected in the company’s price, suggested by its higher PE ratio relative to its peers. If Hwa Hong has been on your watchlist for a while, now may not be the best time to enter into the stock. However, before you make a decision on the stock, I suggest you look at Hwa Hong’s fundamentals in order to build a holistic investment thesis.
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1. Financial Health: Does it have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.
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2. Historical Track Record: What has H19’s performance been like over the past? Go into more detail in the past track record analysis and take a look at the free visual representations of our analysis for more clarity.
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3. Other High-Growth Alternatives : Are there other high-growth stocks you could be holding instead of Hwa Hong? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!
To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned.