China Hongqiao Group (SEHK:1378) Valuation After Hang Seng China Enterprises Index Inclusion

China Hongqiao Group Gains Index Spotlight

China Hongqiao Group (SEHK:1378) has just been added to the Hang Seng China Enterprises Index, a milestone that can attract additional institutional capital and deepen liquidity for existing shareholders.

See our latest analysis for China Hongqiao Group.

The index inclusion comes on top of a powerful run, with the share price at HK$32.68 and a year-to-date share price return of 187.17 percent. Meanwhile, the 5-year total shareholder return of 551.23 percent shows that long-term momentum has been very strong.

If this kind of move has you thinking about what else might be gaining traction, it could be a good moment to explore fast growing stocks with high insider ownership.

Yet with Hongqiao now in a flagship index, trading near record highs and still showing an intrinsic value discount, investors face a key question: is there genuine upside left here, or is the market already pricing in future growth?

Price-to-Earnings of 11.5x: Is it justified?

On a price-to-earnings ratio of 11.5 times compared with a HK$32.68 share price, China Hongqiao looks undervalued against both peers and its own fundamentals.

The price-to-earnings multiple compares the current share price to earnings per share, so it effectively tells investors how much they are paying for each unit of profit.

For a company that has grown earnings by 40.9 percent over the past year, with return on equity of 24.1 percent and high quality earnings, such a modest earnings multiple suggests the market is not fully factoring in its profitability strength.

The discount looks even more striking when set against the Hong Kong Metals and Mining industry average price-to-earnings ratio of 17.1 times and the peer average of 24.4 times. A fair price-to-earnings ratio of 15.2 times implies meaningful upside if sentiment converges toward this level.

Explore the SWS fair ratio for China Hongqiao Group

Result: Price-to-Earnings of 11.5x (UNDERVALUED)

However, risks remain, including cyclically weak aluminum prices and slower revenue growth, which could cap margins and stall the recent rerating.

Find out about the key risks to this China Hongqiao Group narrative.

Another View on Value

Our DCF model suggests a fair value of around HK$45.58 per share, which is about 28 percent above the current HK$32.68 price and reinforces the low 11.5 times earnings multiple. If both methods are pointing to upside, investors may question how long this valuation gap can persist.

Look into how the SWS DCF model arrives at its fair value.

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out China Hongqiao Group for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover 903 undervalued stocks based on their cash flows. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Build Your Own China Hongqiao Group Narrative

If you would rather dig into the numbers yourself and reach your own conclusions, you can build a full narrative in just minutes: Do it your way.

A good starting point is our analysis highlighting 4 key rewards investors are optimistic about regarding China Hongqiao Group.

Ready for your next investing move?

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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