JP Morgan: Maintains "Overweight" Rating on SWIRE PROPERTIES (01972) with a Target Price of HKD 30

J.P. Morgan has published a research report stating that SWIRE PROPERTIES (01972) remains one of its top picks due to its visible profit growth and excellent track record in percentage dividend growth on delivered units. The capital recovery that enhances value also provides upward potential. The valuation is still reasonable, with a 52% discount to net asset value and a dividend yield of 5.2%. J.P. Morgan maintains an "Overweight" rating on the stock, with a target price of HKD 30. The report highlights that SWIRE PROPERTIES' performance in the first half of 2026 shows positive trends across all major segments. The firm predicts sustained year-on-year profit growth exceeding 30% for the 2026 fiscal year due to property development deliveries. Although property development deliveries are expected to normalize starting in the 2027 fiscal year, the firm still anticipates year-on-year percentage growth in 2027/28. It forecasts that the share of total rental income will achieve a mid-single-digit percentage compound annual growth rate from the 2025 to 2028 fiscal years, driven by over 10% compound annual growth from retail in mainland China, offset by a low single-digit percentage decline in Hong Kong office rents. Notably, the share of completed building area is expected to grow from 10.6 million square feet in the 2025 fiscal year to 19.3 million square feet in the 2028 fiscal year, providing a solid buffer for profit growth. The firm indicated that retail in mainland China is expected to record over 10% year-on-year growth this year. In mainland China retail, strong momentum will continue to be a growth driver, with tenant sales in the first half of 2026 improving by 23% year-on-year, primarily due to robust growth at the Swire Properties in Shanghai and the Taikoo Li in Sanlitun, Beijing. Even excluding these two malls, tenant sales still averaged a year-on-year growth of 10%. Although the base in the second half of 2026 will be higher, an overall year-on-year growth exceeding 10% and high single-digit percentage growth excluding outliers is still anticipated. With robust tenant sales and positive rental returns, the share of total rental income is expected to grow by 14% year-on-year in the first half of 2026, with sustained year-on-year growth exceeding 10% expected in the second half of 2026. Retail in mainland China will continue to be a growth driver for Swire due to its rich pipeline of mall openings. Projects scheduled to be completed in the second half of 2026 include the second phase of Taikoo Li in Shanghai and Taikoo Li in Sanya. Starting in 2027, Taikoo Li in Xi'an, Guangzhous Julu Bay Taikoo Li, and phase three of Taikoo Hui in Guangzhou are also expected to open gradually. Therefore, the firm expects the share of rental income to grow over 10% year-on-year in the 2027 and 2028 fiscal years, driven by positive rental returns and new malls. Regarding Hong Kong office properties, J.P. Morgan points out that Pacific Place is leading the recovery, despite negative rental returns on paper, with the share of total rental income remaining flat year-on-year in the first half of 2026, which is a surprisingly positive outcome. This is likely due to an improvement in occupancy rates. Encouragingly, management has noted strong leasing momentum at Pacific Place and improving spot rents. Thus, the firm believes that rental returns at Pacific Place may stabilize in the 2027 fiscal year. Although management commented that One Taikoo Place will maintain resilience, the firm takes a slightly more cautious stance, believing that the competitive landscape driven by new supply in West Kowloon is likely to remain intense. As a result, J.P. Morgan maintains its forecast for a low single-digit percentage decline in rental income for the fiscal years 2026-28.