Is Sunac China Holdings Limited (HKG:1918) A Real Estate Leader?

Sunac China Holdings Limited (SEHK:1918), a HKDHK$125.38B large-cap, operates in the real estate industry which is the most prevalent industry in the global economy, and as an asset class, it has continued to play a crucial role in the portfolios of various investors. Real estate assets usually exhibit distinct and desirable investment features compared to other types of securities, in particular, over a long period of time. Real estate analysts are forecasting for the entire industry, a relatively muted growth of 0.32% in the upcoming year , and an optimistic near-term growth of 21.36% over the next couple of years. However, this rate came in below the growth rate of the Hong Kong stock market as a whole. Should your portfolio be overweight in the real estate sector at the moment? In this article, I’ll take you through the real estate sector growth expectations, and also determine whether Sunac China Holdings is a laggard or leader relative to its real estate sector peers. View our latest analysis for Sunac China Holdings

What’s the catalyst for Sunac China Holdings's sector growth?

Over the past couple of years, as yields for high quality real estate investments have become under pressure, investors have swung towards more niche and diversified buildings such as medical offices, student housing and data storage facilities. In the previous year, the industry saw growth in the twenties, beating the Hong Kong market growth of 11.30%. Sunac China Holdings leads the pack with its impressive earnings growth of 40.49% over the past year. Furthermore, analysts are expecting this trend of above-industry growth to continue, with Sunac China Holdings poised to deliver a 148.10% growth over the next couple of years. This growth may make Sunac China Holdings a more expensive stock relative to its peers.

Is Sunac China Holdings and the sector relatively cheap?

The real estate sector's PE is currently hovering around 7x, below the broader Hong Kong stock market PE of 14x. This illustrates a somewhat under-priced sector compared to the rest of the market. Though, the industry returned a similar 10.60% on equities compared to the market’s 10.00%. On the stock-level, Sunac China Holdings is trading at a higher PE ratio of 25x, making it more expensive than the average real estate stock. In terms of returns, Sunac China Holdings generated 12.48% in the past year, which is 1.88% over the real estate sector.

What this means for you:

Are you a shareholder? Sunac China Holdings’s industry-beating future is a positive for shareholders, indicating they’ve backed a fast-growing horse. However, this higher growth prospect is also reflected in Sunac China Holdings’s high price, suggested by its higher PE ratio relative to its peers. If you’re bullish on the stock and well-diversified by industry, you may decide to hold onto Sunac China Holdings as part of your portfolio. However, if you’re relatively concentrated in real estate, the Sunac China Holdings’s high PE may signal the right time to sell.

Are you a potential investor? If Sunac China Holdings has been on your watchlist for a while, now may not be the best time to enter into the stock since it is trading at a higher valuation compared to other real estate companies. However, that being said, its industry-beating growth prospects may be the reason for high relative valuation. I suggest you look at Sunac China Holdings’s future cash flows in order to assess whether the stock is trading at a reasonable price on this basis.

For a deeper dive into Sunac China Holdings's stock, take a look at the company's latest free analysis report to find out more on its financial health and other fundamentals. Interested in other real estate stocks instead? Use our free playform to see my list of over 100 other real estate companies trading on the market.

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Simply Wall St analyst Simply Wall St and Simply Wall St have no position in any of the companies mentioned. This article 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.