Has Swire Properties Ltd Turned Into An Attractive Investment?

Swire Properties Ltd is a leading real estate conglomerate listed on the Hong Kong Stock Exchange. It invests and develops commercial real estate and operates hotels located mostly in Hong Kong and Mainland China. As of 23 August 2019, Swire Properties Ltd is valued at HK$ 155.6 billion in market capitalisation. In this article, I’ll be sharing on its latest financial results, future plans, and valuation figures. Thus, here are 10 things to know about Swire Properties Ltd before you invest.

Segment 1: Property Investment

It had achieved a CAGR of 7.6% in valuation of property investments. It had risen from HK$ 155.4 billion in 2011 to HK$ 299.7 billion in 2018. It has the following properties in its portfolio:

No.Key PropertiesTypeLocationStakes
1Pacific PlaceOfficeHong Kong100%
2Cityplaza OneOfficeHong Kong100%
3Taikoo Place Office Towers
(PCCW Tower: 50% stake)
OfficeHong Kong100%
4One Island East & One Taikoo PlaceOfficeHong Kong100%
5The Mall, Pacific PlaceRetailHong Kong100%
6CityplazaRetailHong Kong100%
7Citygates OutletsRetailHong Kong20%
8Taikoo Li SanlitunRetailBeijing100%
10Taikoo HuiMixedGuangzhou97%
11Hui FangRetailGuangzhou100%
12HKRI Taikoo HuiMixedShanghai50%
13Sino-Ocean Taikoo LiMixedChengdu50%

Source: Annual Reports of Swire Properties Ltd

Overall, it has achieved a CAGR of 5.6% in revenues from leasing spaces of its investment properties. It had risen from HK$ 7.5 billion in 2009 to HK$ 12.3 billion in 2018. This is mainly attributed to both enjoyment of near full occupancy rates and positive rental revisions of its investment properties in the ten-year period.

Source: Annual Reports of Swire Properties Ltd

Segment 2: Property Trading

In 2018, Swire Properties Ltd has recorded a big fall in revenues for this division. Presently, it has a residential project planned for development namely, 21-31 Wing Fung Street, Wanchai in Hong Kong.

Source: Annual Reports of Swire Properties Ltd

Segment 3: Hotel Operations

It owns and operates a number of hotels listed as follows:

No.Key PropertiesRoomsLocationStakes
1The Upper Room117Hong Kong100%
2EAST345Hong Kong100%
3Headland (owned by Cathay Pacific)501Hong Kong0%
4The Opposite House99Beijing100%
6The Temple House142Chengdu50%
7The Middle House213Shanghai50%

Overall, it has achieved growth in revenues, up from HK$ 172 million in 2009 to HK$ 1.40 billion in 2018. However, despite strong sales results, this division remains a loss-making unit to Swire Properties Ltd.

Source: Annual Reports of Swire Properties Ltd

Financial Results

Swire Properties Ltd’s operating earnings are mainly generated from its investment properties. Earnings contributions from its property trading and hotel operation segments remained insignificant in 2018.

Key Segment
Earnings 2018 (HK$ Million)Earnings 2018 (%)
Property Investments8,73299.3%
Property Trading991.1%
Hotel Operations(41)(0.4%)
Swire’s Operating Earnings8,790100.0%

Source: Annual Reports of Swire Properties Ltd

It has achieved a CAGR of 10.2% in operating earnings, increasing from HK$ 3.66 billion in 2009 to HK$ 8.79 billion in 2018. If we look at it on a per share basis, it has grown from HK$ 0.64 a share in 2009 to HK$ 1.50 a share in 2018.

Source: Annual Reports of Swire Properties Ltd

Balance Sheet Strength

As of 30 June 2019, it has net debt of HK$ 15.67 billion and total equity of HK$ 286.71 billion. Thus, its gearing ratio is 5.5%. It is a decline from 15.3% in 2015. 80% of its debt is based on fixed interest rates while the remainder of 20% is based on floating rates. At present, it was given ‘A’ and ‘A2’ in credit ratings from Fitch and Moody’s.

Source: 2019 Interim Results of Swire Properties Ltd

Future Prospects 1: Investment Properties

Moving forward, Swire Properties Ltd is undertaking the following plans to grow its investment properties in the future:

Source: 2019 Interim Results of Swire Properties Ltd

Key Developments include:
Citygate Outlets’ New Extension
It involves an extension of its retail spaces by 474,000 sq. ft. to 800,000 sq. ft. in Gross Floor Area (GFA). To-date, it achieved an occupancy rate of 98% of the newly extended spaces. Shop outlets are starting to open progressively in August 2019.

Two Taikoo Place
It is around 1.0 million sq. ft. GFA development that is 100%-owned by Swire Properties Ltd at Quarry Bay. It would be completed by 2021/22.

50% Stake in Taikoo Li Qiantan and Taikoo Li Sanlitun West
It is a 1.25 million sq. ft. and 256,000 sq. ft. development in Shanghai & Beijing respectively that would be completed in 2020.

Future Prospects 2: Property Trading

In 1H 2019, Swire Properties Ltd has added two property projects that are located in Singapore and Jakarta. Both locations are relatively new to Swire Properties Ltd. Concurrently, it plans to launch on three brand new projects as follows:

Source: 2019 Interim Results of Swire Properties Ltd

P/E Ratio

As of 23 August 2019, Swire Properties Ltd is trading at HK$ 26.65 per share. Based on its adjusted Earnings per Share (EPS) of HK$ 1.50, the company’s current P/E Ratio is 17.77, lower than its 7-Year Average of 19.31.

P/B Ratio

As of 30 June 2019, it has net assets of HK$ 48.66 a share. Hence, Swire Properties Ltd has a current P/B Ratio of 0.55, below its 7-Year Average of 0.62.

Dividend Yields

In 2018, Swire Properties Ltd paid out HK$ 0.84 in dividends per share (DPS), which is a continuous increase from HK$ 0.60 in 2012. Based on 2018 DPS, it has a current dividend yield of 3.15% per annum, which is above its 7-year average of 2.97% per annum.

Source: Annual Reports of Swire Properties Ltd

VIA’s Verdict

Overall, Swire Properties Ltd had delivered sustainable growth in earnings and dividend payouts to its shareholders. They are hugely attributed by its portfolio of investment properties in Hong Kong and Mainland China. Moving ahead, the company has a pipeline of projects to further expand its portfolio of investment properties, thus, growing its sources of recurring income. 

So it seems that Swire Properties Ltd might still be able to continue growing in the longer term despite the current crisis in Hong Kong. However, the company is not trading significantly cheaper than its past valuation at this moment. This suggests that the company is still relatively fairly valued despite the current decline in the Hong Kong market.

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