2012 recurring profit HKD7.9bn, down 9% and in line with forecast: Properties below and Beverage above expectations
Promising start to the year: bottling turnaround; Cathay's passenger volumes and yields start to pick up
Outlook broadly as expected. Neutral rating, target HKD106
2012 recurring profit was HKD7.91bn, down 9% y-o-y and 1% below our forecast. Reported profit was HKD17.5bn and the key difference was a property revaluation surplus of HKD9.9bn. The performance of all businesses was close to expectations. Properties' contribution was up 35% y-o-y due to the completion of the AZURA residential development in HK partly offset by the stake dilution; Aviation was down 61% due to a lower Cathay contribution; Marine Services' was up 21% y-o-y largely due to an acquisition; and Beverages was down 15% y-o-y due to difficult conditions in the PRC.
Outlook guidance from the briefing: a good start to the year. Swire Pacific's management said that retail sales have been strong in Properties' malls in Hong Kong and the Mainland y-t-d; and although the office market has been quiet, limited supply means reversions will likely remain positive. While some oversupply remains in the offshore support vessel market, demand is good and major new vessels being delivered will go straight into work at decent rates. Management remains optimistic.
Bottling turnaround, passenger demand promising. After a weak 2012, Swire has started to see a decent turnaround in its mainland China bottling business and the outlook for this market, as well as HK and Taiwan, look very promising. Finally, although the industry is clearly unpredictable and air cargo is still weak, management described the last six weeks as being the most promising that it had seen for some time for its passenger business with passenger volumes and yields starting to pick-up.
Neutral, target price HKD106. Our appraised valuation is HKD141/share and our target is set at an unchanged 25% discount to our appraised valuation. Swire Pacific offers 9% potential return (including 2012 DPS). The key upside risk is a pick up in Central HK office demand and a re-rating of its unlisted businesses; downside risks include higher long-term interest rates, a stronger HKD and rising jet fuel prices.