CSI Properties Limited (HKG:497) And The Real Estate Sector Outlook 2017

CSI Properties Limited (SEHK:497), a HKDHK$4.07B small-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 fairly unexciting growth rate of 0.32% in the upcoming year , and a robust short-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. An interesting question to explore is whether we can we benefit from entering into the real estate sector right now. In this article, I’ll take you through the real estate sector growth expectations, and also determine whether CSI Properties is a laggard or leader relative to its real estate sector peers. Check out our latest analysis for CSI Properties

What’s the catalyst for CSI Properties'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. In the previous year, the industry saw growth in the twenties, beating the Hong Kong market growth of 11.29%. CSI Properties lags the pack with its lower growth rate of 17.01% over the past year, which indicates the company will be growing at a slower pace than its real estate peers. As the company trails the rest of the industry in terms of growth, CSI Properties may also be a cheaper stock relative to its peers.

Is CSI Properties and the sector relatively cheap?

Real estate companies are typically trading at a PE of 7x, lower than the rest of the Hong Kong stock market PE of 14x. This means the industry, on average, is relatively undervalued compared to the wider market - a potential mispricing opportunity here! Though, the industry returned a similar 10.60% on equities compared to the market’s 10.06%. On the stock-level, CSI Properties is trading at a PE ratio of 3x, which is relatively in-line with the average real estate stock. In terms of returns, CSI Properties generated 13.08% in the past year, which is 2.48% over the real estate sector.

What this means for you:

Are you a shareholder? CSI Properties has been a real estate industry laggard in the past year. If your initial investment thesis is around the growth prospects of CSI Properties, there are other real estate companies that have delivered higher growth, and perhaps trading at a discount to the industry average. Consider how CSI Properties fits into your wider portfolio and the opportunity cost of holding onto the stock.

Are you a potential investor? If CSI Properties has been on your watchlist for a while, now may be the best time to enter into the stock. It delivered lower earnings growth compared to its real estate peers in the near term, and it is also trading at a PE in-line with these companies. If growth and mispricing are important aspects for your investment thesis, there may be better investments in the real estate sector.

For a deeper dive into CSI Properties'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.