Morgan Stanley picks 5 China stocks with big upside — and big dividends too

Published Mon, Apr 12 20219:34 PM EDT

Evelyn Cheng @in/evelyn-cheng-53b23624 @chengevelyn

Morgan Stanley has picked out a list of top China stocks to buy as investors hunt for yield. During the pandemic, many companies cut or deferred dividends, regular cash payouts to shareholders. That risk is much lower now, Morgan Stanley said in its latest stock ideas report published on April 9. They pointed to analysis that showed only 37% companies announced dividend cuts or suspensions for 2020, less than the 42% previously forecast. Here are five Chinese stocks listed in Hong Kong, that Morgan Stanley said will likely keep on paying dividends. They all have a "buy" rating and a market capitalization of more than $2 billion. China Shenhua Energy Price target: 20.69 Hong Kong dollars Morgan Stanley predicts gains of nearly 30% ahead for the state-owned coal mining and power production giant, based on its close Friday of 16 Hong Kong dollars ($2.06) a share. The analysts had a price target of 20.69 Hong Kong dollars. "We believe Shenhua has the strongest balance sheet among its peers under our coverage, which should provide dividend upside for the stock," the analysts wrote. They expect the company to benefit from greater demand for coal after a shortage this past winter , and contributions from other business lines such as railway operations. The consensus expectation is a dividend yield of 10%, with the next payout scheduled for the end of June, according to the report. China Resources Land Price target: 46.46 Hong Kong dollars A developer of a range of projects from shopping centers to office parks, China Resources Land has a "solid credit profile" that lets it access cheap funding for "steady growth," the Morgan Stanley analysts said. They predict shares will climb more than 25% from Friday's close of 36.60 Hong Kong dollars ($4.70) a share to 46.46 Hong Kong dollars. Shareholders will likely get a dividend yield of 4.4%, according to a consensus estimate cited in the report. The analysts expect property prices will grow 3% from December 2019 levels in China's largest cities, but fall by 3% in the country's less developed cities. Anhui Conch Cement Price target: 63 Hong Kong dollars The mainland China-based cement manufacturer will likely see an uptick in sales this year as it increases its market share in eastern China, Morgan Stanley said. Those gains will help Anhui Conch Cement 's stock climb to their price target of 63 Hong Kong dollars ($8.10) a share. That's about 25% upside potential from Friday's close of 50.10 Hong Kong dollars, while investors could enjoy a dividend yield of 5.1%, according to consensus expectations cited in the report. However, its shares could lose about a third of their value if property demand is weaker than expected, or the government intervenes in cement pricing, the report said. Sun Hung Kai Properties Price target: 133 Hong Kong dollars The Hong Kong property developer is set to benefit from a "resilient property market outlook," the Morgan Stanley analysts said. They predict residential prices in Hong Kong will increase 2% this year, while retail rents will rise 10% from their levels in the fourth quarter. They expect Sun Hung Kai to also benefit from rental income as gross floor area in China nearly doubles in the next four years, while more land in Hong Kong is converted from farmland. As a result, shares can rise to 133 Hong Kong dollars ($17.11) each, up 12% from Friday's close of 118.40 Hong Kong dollars each, the report said, noting the consensus among analysts is for a dividend yield of 4.2%. However, a sharp drop in rental prices in the next 12 months could send shares down more nearly 40% to 73 Hong Kong dollars each, the analysts said. Longfor Price target: 52.81 Hong Kong dollars The property developer will likely hold its gains — and pay investors a dividend yield of 3.9% — given its "significant" land holdings in China's largest cities and a "strong" investment property business, the analysts said. Longfor shares closed at 50 Hong Kong dollars ($6.43) each on Friday, leaving about 5% in gains ahead to reach the investment bank's price target of 52.81 Hong Kong dollars a share. While the analysts expect strong earnings growth in the next few years, they caution Longfor could suffer if new shopping malls open more slowly than expected. — CNBC's Michael Bloom contributed to this report.

Wuhan Hang Lung square is the 11th shopping mall developed by Hong Kong Hang Lung real estate in mainland of China.

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Morgan Stanley has picked out a list of top China stocks to buy as investors hunt for yield.

During the pandemic, many companies cut or deferred dividends, regular cash payouts to shareholders. That risk is much lower now, Morgan Stanley said in its latest stock ideas report published on April 9.

They pointed to analysis that showed only 37% companies announced dividend cuts or suspensions for 2020, less than the 42% previously forecast.

Here are five Chinese stocks listed in Hong Kong, that Morgan Stanley said will likely keep on paying dividends. They all have a "buy" rating and a market capitalization of more than $2 billion.