Goldman Sachs: SWIRE PROPERTIES (01972) Mid-term performance exceeds expectations, maintains "Buy" rating.

Goldman Sachs released a research report stating that SWIRE PROPERTIES (01972) saw its recurring core net profit increase by 36% year-on-year to HK$4.661 billion in the first half of the year, excluding profits from the sale of non-core investment properties and revaluation gains, exceeding both the banks and market expectations. This growth was mainly driven by the sale of two residential properties at 6 Deep Water Bay Road, which recorded a development profit of HK$1.2 billion. The bank maintained a "Buy" rating, with a slight adjustment of the 12-month target price from HK$30.7 to HK$30.3, based on an unchanged 40% discount to net asset value. During the period, SWIRE PROPERTIES' total revenue rose by 8% year-on-year to HK$9.413 billion. Total rental income increased by 2% year-on-year to HK$6.625 billion, showing improvement compared to a year-on-year decline of 4% and 2% in the second half and first half of last year, respectively, benefitting from the strong performance of its mainland investment portfolio, where retail properties rose by 13% and office buildings by 4%. In Hong Kong, although office leasing continued to record negative returns, rental contributions remained flat year-on-year, which was an improvement over declines of 4% and 2% in the first and second halves of last year. The hotel business turned profitable with a net profit of HK$5 million, compared to a loss of HK$45 million in the same period last year, due to an increase in inbound travelers. Goldman noted that the interim dividend for the first half rose by 6% year-on-year to HK$0.37 per share, consistent with its yearly mid-single-digit increase commitment. The net debt-to-equity ratio remained stable at 14.8%. The group continues to advance its long-term investment plan of HK$100 billion, with approximately HK$69 billion in total capital commitments identified for projects, including HK$46 billion in China, HK$13 billion in Hong Kong, and HK$10 billion in property trading business. In mainland China, thanks to the completion of several property enhancement projects, tenant sales in its malls increased by 23% year-on-year. Tenant sales at Taikoo Li Sanlitun in Beijing rose by 63%, benefiting from a large brand mix upgrade in the north area at the end of last year and the opening of the global flagship store of Herms in April. Sales at Xinyi Taikoo Hui in Shanghai increased by 82% year-on-year. In Hong Kong's retail properties, Taikoo Place and Cityplaza recorded tenant sales growth of 15% and 16%, respectively. Management holds a positive outlook on the business prospects, anticipating continued strength in mainland retail properties and a narrowing of negative rental yields in Hong Kong office spaces, with a potential turnaround expected by the beginning of next year. Goldman Sachs slightly adjusted its core net profit forecasts for 2026 to 2028 in response to the trends in property sales and leasing this year, with changes ranging from -2% to 0%, maintaining the "Buy" rating, believing that the group has various leverages to maintain mid-single-digit dividend growth. The current price corresponds to a net asset value discount of approximately 52%, a price-to-book ratio of 0.4 times, and a dividend yield of 4.9%.