On Wednesday, UBS analyst upgraded shares of HKBN Ltd. (1310:HK) (OTC: HKBNF) from Neutral to Buy, with a new price target set at HK$3.30, up from the previous HK$3.16. The upgrade was based on the anticipation of a bottoming out in the company's dividend per share (DPS) due to a stabilizing enterprise business. Additionally, potential rate cuts were cited as a factor that could contribute to saving on interest costs and supporting valuation from a dividend yield perspective.
The analysis by UBS comes ahead of the expected US rate cut cycle, which is projected to commence at the Federal Open Market Committee (FOMC) meeting on September 17-18. UBS forecasts the Fed Fund rate to drop to 450-475 basis points by the end of the year and to further decrease to 300-325 basis points by the end of 2025.
The firm assumes that HKBN's dividend yield spread over the risk-free rate will remain constant, given the company's stabilizing fundamentals.
This assumption underpins the belief that HKBN's stock is positioned to re-rate, especially with the dividend yield expected to trade at 150 basis points lower by the end of 2025. The new price target implies an 11% dividend yield for the fiscal year 2025, compared to the current trading yield of 12-13% for the fiscal year 2024.
UBS suggests that investor skepticism regarding whether HKBN's dividend has reached its lowest point in FY2024 may have prevented them from factoring in a potential re-rating path amid the anticipated rate cuts.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.