What's changed
We highlighted in our Mar 15 report that the widening of Swire’s NAV discountfrom 5%-10% to 22% over the past six months has, to a certain extent, priced inthe heavy capex of its marine division, and its results show signs of operationalrecovery in marine and beverage. In this report, we take a closer look at thefrequently overlooked businesses at the holdco level, which would account for14%/19% of group EV/ EBIT in 2013E. We project their CROCI to improve from10.3% to 15.2% in 2015E, a driver for the group’s returns, aside from Cathay.
Implications
1) Among the three unlisted divisions, we see more upside potential inmarine, where the demand/supply outlook is turning more benign and SPO’svessel replacement is coming to an end, with budgeted capex cut by half toHK$3bn in 2014E. We project 33%/25% yoy earnings recovery in 2013E/14E; (2)While competition is likely to remain intense, Swire’s Coca Cola franchises inits four markets should benefit from lower PET/sugar costs and macrorecovery, particularly in countries where it commands better pricing power forleading position (i.e., HK/US); (3) Given fragmented market structures andsmall business scales, its trading division has exhibited significant earningsvolatility. Mgmt has not commented on various news reports regarding itspotential acquisition targets to expand its retail network. Depending on thepotential targets and valuation, a successful acquisition could be EBITDAaccretive and introduce a new potential growth driver to the group.Valuation
We raise our 2013E-15E EPS by 3%-6% and 12-m NAV-based target price toHK$105 (from HK$104) to reflect higher marine and updated Cathay estimates.If Swire is able to improve cash return from its holdco divisions back tohistorical average of 16% (vs. 10% GSe), our scenario analysis suggests animplied value of HK$117.80, 12% higher than our base case value (HK$105).Key risksBetter/worse than expected HK office and aviation outlook.