- February 16, 2021
To kickstart this New Year, we are initiating coverage of Yuexiu REIT (405.HK) with Buy Rating and a Target Price of HK$4.99/sh (34% upside). Yuexiu REIT is a 0.8x Beta, 7.5% 2021E yield stock backed by rentals of iconic GZ IFC.
We believe market has overlooked Yuexiu REIT’s double fundamental recovery through interest savings on its FX Debt, as well as the China Macro recovery since 2H20. We believe this presents an attractive opportunity to invest in a portfolio of prime assets in the Greater Bay Area, which includes the iconic Guangzhou IFC.
Key Highlights:
- While the Fixed Income USD China Property High Yield bonds have surged in the past year, driving yields to historical lows, Yuexiu REIT’s dividend is still offering an attractive 2021E 7.5% yield for a stock with a Beta of only 0.8x.
- We believe market has overlooked Yuexiu REIT as a key beneficiary of (1) historical low USD/HKD interest rates; and (2) China’s macro recovery in 2H20, with its exposure to Wuhan as well as Guangzhou Hotels market.
- We believe the upcoming results announcement in March 2021 will be the key catalyst to drive the share price higher, as investors look ahead into 2021E outlook.
- The REIT has a total HKD/USD borrowings of ~RMB13.18bn (~89% of total borrowings) on its balance sheet. As a result, every 1 ppt decline in interest rate will yield a RMB132m interest savings, i.e. ~13% (tax adjusted) of its 2020E distributable income, in our view.
