I remember a few weeks back when Hang Seng and Hong Kong stocks stole the limelight with their sudden rally.
That rally has somehow fizzled out.
And I am not entirely sure when the real return to fair value for Hong Kong and China markets will come.
That said, with a contrarian approach, here are 10 Hong Kong blue chips still worth your attention if you think Mr Market is giving out opportunities to load up on these shares before the next rally.
1. Hang Lung Properties Ltd (HKG: 0101): 11.18% dividend yield
Hang Lung Properties is a blue-chip property developer and property investment in Hong Kong. It is the listed subsidiary of Hang Lung Group (HKG: 10).
It is still owned and run by the Chan family and has plenty of retail and commercial spaces in both Hong Kong and China.
Some of its well-known properties in China come with the “66” affix. Notable names include Plaza 66, Grand Gateway 66, Forum 66, and Spring City 66.
Hang Lung is also another deep-value and high dividend-yield stock. It trades at a price-to-book ratio of just 0.24x while sporting an 11.22% dividend yield.
The company has plenty of cash on its books. Most of its dividends paid out over the years are lower than its operating cash flow.
2. China Construction Bank (HKG: 0939): 7.55% dividend yield
China banks are a love-or-hate topic. I have met investors who keep repeating “shadow banking” like a broken record and those who think current share prices justify the margin of safety.
CCB is the 6th largest bank in the world by market cap as of time of writing. It is one of the 29 banks categorized as Global Systemically Important Banks (G-SIBs).
CCB sports a growing DPS trend, and the dividend payout ratio is well below 50%.
So, is a Chinese bank with a dividend yield of above 7.5%, a P/E of 4.04x and a P/B of 0.43x a triple value play?
3. Industrial And Commercial Bank Of China (HKG: 1398): 7.32% dividend yield
ICBC is China’s largest bank by market cap and the third largest in the world, just behind JPMorgan Chase & Co (NYSE: JPM) and Bank of America Corp (NYSE: BAC).
However, when it comes to total assets, it holds a whopping USD 6.59 trillion worth of it, soundly beating JP Morgan by more than USD 2.44 trillion in excess.
Due to its sheer size, like CCB, it is also regarded as a G-SIB and is state-owned.
It also sports a growing DPS trend with a low payout ratio. And I really can’t fathom how the world’s largest bank by asset size is trading at just a 0.42x price-to-book ratio.
4. Bank of China Limited (HKG: 3988): 6.84% dividend yield
Another Chinese bank that most of us are familiar with is BOC. It is the seventh-largest bank in the world by market cap and 4th largest by total assets.
BOC has had a solid track record growing its top and bottom line, and dividends per share have also grown in tandem.
Like its peers, it sports a low p/b ratio as well, trading at 0.44x, together with a P/E of 4.77x.
5. Power Assets Holdings (HKG: 0006): 6.68% dividend yield
Power Assets is the majority shareholder of Hong Kong Electric Holdings Limited (HKG: 2638), which makes it part of the CK Hutchinson Group. It is a vertically integrated electric utility company that has other shareholdings in utility businesses in Australia, Thailand, and the UK.
It operates more like an investment holding company, investing in power networks and utility businesses globally. And since the power-generating industry is recession-proof and evergreen, growth is inherent, and so is its dividend growth.
Investors might be concerned about the high dividend payout ratio. But if you look at the rationale of how Power Assets is just a subsidiary, it makes sense for the company to repatriate its earnings as dividends back to the holding company.
6. China Mobile Ltd (HKG: 0941): 6.52% dividend yield
China Mobile, a state-owned behemoth incorporated in 1997, is China’s largest wireless carrier with nearly a billion subscribers. It provides mobile voice, data, and internet services across the country.
Just like Power Assets, it is a utility business that is resilient, as mobile data has officially become a basic necessity in life.
The top and bottom lines have shown resilient growth, even during the pandemic years.
Thus, it is no wonder their DPS is also rising steadily.
7. PetroChina Company Limited (HKG: 0857): 6.2% dividend yield
PetroChina is Asia’s largest oil and gas producer. It is the 4th largest in the world by market capitalization, behind Saudi Aramco (TADAWUL: 2222), Exxon Mobil Corp (NYSE: XOM) and Chevron Corp (NYSE: CVX).
The Oil and Gas sector can be notoriously cyclical, and we can see that even the largest like PetroChina can be affected. Large capex cycles with depreciation can sometimes affect its net profitability.
However, with its growing operating cash flow and cash pile, it has been able to reward investors with growing dividends per share over the years.
It is also under its book value, at a P/B ratio of 0.90x.
8. Chow Tai Fook Jewellery Group Ltd (HKG: 1929): 6.13% dividend yield
Chow Tai Fook Jewellery Group is a renowned jewellery company originating from Hong Kong. It was founded in 1929 by Chow Chi-yuen and began as a single gold jewellery store in Guangzhou, China. Today it is one of the largest jewellery chains and has a presence in Singapore as well. The name embodies auspicious wishes, referencing a traditional Chinese couplet used to express luck, prosperity, and class.
Even though we are living in an age where there is digital gold, Chow Tai Fook’s jewellery business is still growing. Revenue rebounded after FY 2020, while net profits were suppressed, judging by higher gold prices.
Again, its dividend payout ratio is on the high side, as it repatriates its earnings as dividends back to Chow Tai Fook Group, the major shareholder and holding company.
9. China Merchants Bank Co., Ltd. (HKG: 3968): 6.06% dividend yield
China Merchants Bank (CMB) holds the distinction of being China’s first joint-stock commercial bank wholly owned by corporations. Headquartered in Shenzhen, it played a pioneering role in China’s banking reforms.
CMB does not share as much limelight as its cohorts – BOC, ICBC, AgBank and CCB, as size-wise it is way smaller. But it has proven itself to be a key contender when it comes to retail banking.
Retail and commercial banking can be highly competitive, but this relatively small bank proves that it can go head to head with its larger peers while still maintaining growth momentum.
It trades at a richer valuation, with a price-to-book ratio of 0.85x, as it is run more privately than the state-owned banks. Perhaps that is the reason for its premium valuation?
10. China United Network Communications Group (HKG: 0762): 5.47% dividend yield
China Unicom is the 3rd largest telecommunications operator in China. On top of its mobile networks, it also has a cloud catalyst, which is growing well.
It has a track record of growing its operating cash flow, which not only funds its capex but also gets returned to shareholders as dividends.
Its growing DPS, albeit with an increasing payout ratio, can assure that so long as the business is intact, shareholders will receive cash payouts from its profits.
There is value in HK markets, but most are waiting for revaluation
These 10 stocks do not have a broken business model. They form the bedrock of the Hang Seng Index. This means they are the blue chips, the crème de la crème. Some may have their cyclicality, but most are operating in evergreen businesses.
Sometimes the value they are trading at warrants a head-scratching predicament. And there could be some grounds for the legitimacy of those who doubt the books.
My point of view? China and Hong Kong markets may be of a different class compared to the US, but you don’t become the world’s 2nd largest economy if there is no class and quality.
If you still cannot still see value in the current Hong Kong markets, maybe you are waiting for a revaluation.
But when that eventually comes, you will lament the missed opportunity when the valuation is too good to be true!
p.s. if you want to learn how to analyse and find the best stocks to buy, Alvin shares our strategy at this live webinar.