JPMorgan has released a report stating that after a two to three-year earnings downturn, the property sector is poised to enter a multi-year profit growth cycle. This shift is expected to be initiated by the financial results, mostly interim but some annual, scheduled for release between July and November.
The bank forecasts a 9% year-on-year increase in core net profit and a 2-3% rise in dividends per share. This projected recovery is primarily driven by improving development margins in Hong Kong, a stabilization in rental income in certain segments, and lower financing costs.
In the near term, however, the sector is likely to remain highly sensitive to the rapidly evolving narrative surrounding interest rate trajectories.
Key Investment Considerations
Within its stock selection strategy, the bank expresses a preference for companies that meet several criteria. These include having lower sensitivity to interest rates, the potential for earnings recovery over the next two to three years, active capital recycling initiatives, and improving operational metrics in key business segments.
Examples of such operational improvements include a rebound in spot office rents in Central and a stabilization of Hong Kong retail spot rents. The report suggests that in the short term, the certainty for developers is lower compared to rental-focused stocks like REITs.
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