20180809-高盛-太古地产-01972.HK-Earnings_Review__1H18_results_above_expectations__active_capital_recycling_8页_431kb

Swire Properties (1972.HK) Summary

Core Content

Swire Properties, listed on the Hong Kong Stock Exchange (1972.HK), reported first-half 2018 (1H18) results that exceeded expectations, driven by significant disposal gains and strong rental income growth. The company is actively engaged in capital recycling, which has positively impacted its financial performance and valuation metrics.

Main Points

Earnings Performance

• Underlying Profit: Increased by 34.4% yoy to HK$6,219mn, largely due to HK$2,478mn in disposal gains, which were higher than the HK$1.1bn initially forecasted.
• Attributable Gross Rental Income (HKRI): Rose 11% yoy to HK$6.9bn, in line with forecasts, with China as a key growth driver.
• BVPS (Book Value per Share): Grew 6.8% hoh to HK$47.01, supported by a HK$15.5bn positive revaluation of investment properties.
• Interim DPS (Dividend per Share): Increased by 8.0% yoy to HK$27, surpassing flat year-over-year forecasts.

Key Disposals

• Kowloon Bay Office: Sold for c.HK$6.5bn, contributing significantly to the earnings.
• Cityplaza 3 and 4: Conditionally agreed to sell at HK$15bn, with the transaction expected to be completed by April 2019.

New Development Pipeline

• One Taikoo Place (Island East): c.1mn sq ft GFA, >90% pre-let with a diversified tenant base.
• South Island Place (Wong Chunk Hang): c.383k sq ft (50% owned), 20% pre-leased with an anchor tenant in advanced negotiations.
• Tung Chung Town Lot No. 11: c.474k sq ft (20% owned), 50% pre-let.
• Shanghai JV: Formed a 50% joint venture to develop a c.1.25mn sq ft shopping mall in Qiantan.
• Beijing Lease: Signed a long-term lease in Sanlitun to refurbish c.296k sq ft Yashow Building into a retail mall.

Retail Operations

• China Portfolio: Delivered substantial growth, with +21% yoy in HKD and +11% yoy in RMB for retail gross rental income.
• HK Retail: +10% yoy growth at Cityplaza, supported by a low base in the prior period due to cinema closure.
• Mall Footfall: Management noted strong footfall in July, indicating robust retail performance.

Key Financial Metrics

Valuation Ratios

Growth and Margins

Key Risks

• Economic Slowdown: Could dampen demand for HK office space.
• Project Delays: Potential issues in development timelines.

Analyst Ratings and Price Target

• Rating: Buy
• 12-Month Price Target: HK$33.20, with an upside of 8.7% from the current price of HK$30.55.
• M&A Rank: 3, indicating low probability of being an acquisition target.
• Ratios & Valuation: Continued strong performance in the HK office market and active development pipeline.

Investment Highlights

• Active Capital Recycling: The company is focusing on asset disposals to reinvest in new developments.
• Reinvestment Plan: Proceeds from the sale of Cityplaza 3 and 4 will be used for new projects, not for special dividends.
• Capital Commitments: Increased to HK$19bn, up from a 6-year low of HK$14bn, but still below the HK$29bn peak in 2013.
• M&A Opportunities: The company is still actively seeking new M&A opportunities.

Summary of Key Financial Statements

• Total Revenue: Increased in 1H18, with HK$5,996mn.
• EBITDA: Rose to HK$4,862.00mn, with a net rental margin of 81.1%.
• Underlying Profit: Grew 34.4% yoy to HK$6,219mn.
• Net Profit Attributable to Shareholders: Increased 43.6% yoy to HK$21,205mn.

Additional Notes

• Dividend Yield: Ranged from 2.7% to 3.1%.
• Net Debt/Equity: Decreased slightly to 12.5% in 12/20E.
• Interest Cover: Declined to 7.9 in 12/20E.
• Gearing: Decreased to 11.1% from 13.6% as of Dec-17.

Disclosure and Research Context

• Analyst: Justin Kwok, CFA.
• Goldman Sachs Relationship: The firm may have a conflict of interest due to its business relationship with Swire Properties.
• Research Context: The report is based on company data and Goldman Sachs Research estimates.
• GS Factor Profile: Provides a comparative analysis of Swire Properties with the market and sector peers based on growth, financial returns, and valuation metrics.

Conclusion

Swire Properties demonstrated strong earnings performance in 1H18, driven by significant disposal gains and rental income growth. The company's active capital recycling strategy and reinvestment plans highlight its focus on sustainable growth. While the valuation metrics show an upside, key risks such as economic slowdown and project delays remain. The analyst recommends a Buy rating with a 12-month price target of HK$33.20, reflecting confidence in the company's fundamentals and growth prospects.