UBS: Raised Swire Properties (00019) target price to HK$87, expected 36% increase in recurring basic profit in the first half of the year. Rated "Neutral".

UBS released a research report stating that they maintained a "Neutral" rating for Swire Properties (00019), with the target price of Swire Properties raised by 20% from 72.7 Hong Kong dollars to 87 Hong Kong dollars. This adjustment reflects the latest market value of Cathay Pacific and Swire Properties, and the discount rate has been narrowed to 20% (previously 30%). UBS expects Swire Properties to achieve a recurrent basic profit of 6.4 billion Hong Kong dollars in the first half of this year, a year-on-year increase of 36%, mainly benefiting from the property development income of Swire Properties and the profit performance of Cathay Pacific. The bank predicts that Swire Properties will contribute a basic profit of 3.7 billion Hong Kong dollars to Swire, a year-on-year increase of 32%, including a profit of 1.1 billion Hong Kong dollars from the sale of two luxury homes in Deep Water Bay; overall rental income is expected to remain roughly flat year-on-year, with the decline in Hong Kong office rents offset by Hong Kong retail rents and mainland retail rents. As for Cathay Pacific, it is expected that under the strong trend of passenger and cargo demand, non-recurring net profit will increase by 26% to 40% year-on-year. UBS raised Swire's profit forecast for 2026 to 2028 by 1% to 8% to reflect the latest forecasts of Swire Properties and Cathay Pacific, and expects earnings per share to grow by 19% in 2026. The bank assumes a dividend payout ratio of 50% and raises the forecast for earnings per share for 2026 to 2028 by 1% to 8%, which implies a dividend growth of 2% to 19% year-on-year. UBS pointed out that Swire's two residential projects in Shanghai Yangjing and Qiantan will contribute profits starting in the second half of 2026, with expected unconfirmed contract sales of approximately 10 billion RMB, and profit margins expected to be in the mid teens. UBS expects that the free cash flow and debt ratio at the parent company level of Swire will improve, mainly benefiting from increased dividend contributions from Cathay Pacific, as well as reduced capital expenditure after the sale of ITM business and relocation of Xiamen factory by Hong Kong Aircraft Engineering, and capital expenditure will also decrease after the implementation of new business in Thailand/Laos by the beverage division. Swire has committed to a dividend payout ratio of at least 50% of recurrent basic profits, and will also enhance its shareholder return policy.