1、Asia Pacific Equity Research 06 August 2010 Swire Pacific Overweight Previous: Neutral 0019.HK, 19 HK Upgrade to OW - strong rental/aviation outlook; beverage/marine to bottom out Price: HK$98.00 Price Target: HK$115.80 Previous: HK$98.41 Hong Kong Conglomerates (2) earlier-than-expected expansion o
2、f cap rates which would reduce Swires NAV. Reuters: 0019.HK, Bloomberg: 19 HK HK$ in millions, year-end December FY08 FY09 FY10E FY11E FY12E Sales 24,670 24,909 25,475 33,482 40,367 52-week range A HK$76.6 - 101.0 52-week range B HK$14.70 - 18.44Core net profit 3,488 8,477 10,037 11,662 14,376 Marke
3、t cap A HK$88747MM Market cap B HK$53794MMEPS (HK$) A (reported) 3.90 13.24 12.67 7.75 9.55 Market cap A US$11429MM Market cap B US$6928MMEPS (HK$) A (core) 2.30 5.63 6.67 7.75 9.55 Shares outstanding A 906MM Shares outstanding B 2995MMDPS (HK$) A 2.38 2.80 3.34 3.88 4.78 EPS growth (%)A (core) (60)
4、 144 18 16 23 Avg daily value -A HK$194.23MM Avg daily value B HK$8.3MMP/E (x) A (core) 42.5 17.4 14.7 12.6 10.3 Avg daily value -A US$25MM Avg daily value B HK$1.1MMP/E (x) B (core) 39.0 15.9 13.5 11.6 9.4 Avg daily volume - A 2.2MM shares Avg daily volume - B 0.5MM sharesDiv yield (%) A 2.4 2.9 3.
5、4 4.0 4.9 Div yield (%) - B 2.7 3.1 3.7 4.3 5.3 Source: Bloomberg, J.P. Morgan estimates. Pricing as of 5 Aug 2010 2 Asia Pacific Equity Research 06 August 2010Benjamin Lo, CFA (852) 2800-8598 Company Description NAV sensitivity metrics NAV Impact (%) HK Office rental assumption Impact of each 5% p
6、oint change 1.7% HK Retail rental assumption Impact of each 5% point change 1.3% Cap rate changes Impact of each 0.5% point change 5.7% Source: Bloomberg, J.P. Morgan estimates Price target and valuation analysis Swire Pacific is a Hong Kong-based conglomerate with 72% of its gross assets value in p
7、roperty. Swire also has interests in aviation, marine services, beverages, trading and industrial. It is the controlling shareholder of Cathay Pacific, a HK-based international airline. NAV breakdown Trading (2) earlier-than-expected expansion of cap rates which would reduce Swires NAV. Source: Comp
8、any, Bloomberg, J.P. Morgan estimates EPS: J.P. Morgan vs consensus J. P. Morgan Consensus FY10E underlying 6.67 6.04 FY11E underlying 7.75 6.90 Source: BEST, J.P. Morgan WACC calculation HK ChinaRisk free rate (Rf) 4.0% 4.0%Market risk (Rm) 9.0% 11.0%Beta 1.0 1.0Cost of equity (Re) 9.0% 11.0%Compan
9、ys cost of debt (Rd) - after tax 4.4% 4.5%Long term Debt(D)/Equity(E) ratio 25.0% 25.0%WACC 8.1% 9.7%3 Asia Pacific Equity Research 06 August 2010Benjamin Lo, CFA (852) 2800-8598 Table 1: Swire Pacific - Mid 2011E NAV breakdown Division Valuation methodology Mid-2011E NAV (HK$MM) (HK$) % Properties
10、 209,169 139.0 72% Property Investment Yield cap. (O: 4.75%-5%; C: 5.25%; R: 4%; China: 8.25%) 190,345 126.5 66% Property Development DCF WACC (HK: 8.1%; China 9.7%) 10,295 6.8 4% Investment properties under dev. DCF WACC (HK: 8.1%; China 9.7%) 5,154 3.4 2% Hotels HK$3m per room 3,375 2.2 1% Aviatio
11、n 46,580 31.0 16% Cathay (42%) (0293.HK, OW) JPMs PT of HK$22 33,857 22.5 12% HAECO (75%) (0044.HK, NR) Market value 12,724 8.5 4% Marine Services 16x P/E (sector average) 17,048 11.3 6% Beverages 17x P/E (sector average) 11,268 7.5 4% Trading (2) earlier-than-expected expansion of cap rates which w
12、ould reduce Swires NAV. Financial position remains healthy; set to return to positive FCF next year Swires net gearing stood at 22% at the end of June 2010 (21% at end-2009). Following the completion of purchasing an extra stake in HAECO last month, which costs Swire c.$5B in total, Swires end-2010E
13、 net gearing is likely to further rise to 24% which is still healthy but is already the highest level since 1998. We believe Swires traditionally prudent management style is unlikely to take on a more aggressive stance towards land bank replenishment and new acquisitions in the near term. That said,
14、 its net gearing is likely to gradually come down after 2010E as Swire should return to positive free cash flows (FCF) next year (discussed in the next paragraph). Figure 3: Swire Pacific - net gearing chart 0%5%10%15%20%25%30%1992A1993A1994A1995A1996A1997A1998A1999A2000A2001A2002A2003A2004A2005A200
15、6A2007A2008A2009A2010E2011E2012ESource: Company data, J.P. Morgan estimates Factoring in net capex and investments of $11B in 2010E (including recent HAECO stake purchases) and a further $4B in 2011E, Swires post-capex FCF should return to positive $6.4B in 2011E, from negative in 2010E. Hence, from
16、 2011E onwards, Swire can sustain its dividends without putting any pressure on its balance sheet. Swires dividend policy is to pay out half of the sustainable earnings over the economic cycle (i.e. unrealized property revaluation gains are not eligible for distribution). The payout may be more or l
17、ess than half of earnings by reference to the sustainability of any one years earnings, the current level of net debt and opportunities to deploy significant new capital. At its latest closing price, we estimate Swires dividend yield is a solid 3.4% for 2010E and 4.0% for 2011E. 6 Asia Pacific Equit
18、y Research 06 August 2010Benjamin Lo, CFA (852) 2800-8598 1H10 interim results highlights Table 3: Swire Pacific - 1H10 results summary and comments HK$MM 1H09 1H10 %YoY Comments Property 1,847 2,323 25.8% - investment 1,945 2,335 20.1% Gross rental income +9% office +7%, retail +10% (8% for Hong K
19、ong only). - trading 4 35 775.0% - hotel (102) (47) na Net loss narrow thanks to improving occupancy and room rates. Aviation 520 2,281 338.7% - Cathay Pacific 277 2,082 651.6% Reported very strong numbers, outlook remains positive. - Haeco 191 180 -5.8% - Hactl 52 18 -65.4% Disposed in May 2010. -
20、others 0 1 na Marine services 929 449 -51.7% Decline due to lower average charter rates (-18% y/y) and lower fleet utilisation (-13 percentage points) in 1H10. Management expects outlook for 2H10 to remain difficult due to industry over-capacity, but a recovery in the medium term is likely. Beverage
21、s 371 266 -28.3% Declined due to coooler-than-normal weather in 1H10 and weaker margins (resulting from pricing pressure, higher labour and sugar costs). Industrial 90 90 0.0% Trading 39 107 174.4% Taikoo Motors sold 66% more vehicles; Swire Resources profits +97%. Others (33) (596) na Core earnings
22、 3,763 4,920 30.7% Revaluation movement shown in income statement (1,178) 5,205 Included in share of profits of JCEs and associates 1,130 1,261 Total revaluation movement (48) 6,466 Deferred tax on revaluation movements* (455) (1,269) Realised profit on sale of investment properties - (130) Dep. of
23、investment properties occupied by the Group (2) (10) Minority interests share of revaluation less deferred tax 66 (19) Impairment of hotel held as part of a mixed-use development (128) - Net investment properties adjustments (567) 5,038 nm Other significant items: - Capital profits Gain on remeasure
24、ment of previously held interest in HAECO 2,547 Profit on sale of interest in Hactl 825 Other investments 40 Investment properties - 577 Properties previously occupied by the Group 110 - Impairment of land and stand-alone hotels (75) 35 3,989 Headline earnings 3,231 13,947 332% EPS - headline 2.15 9
25、.27 331% Interim DPS 0.60 1.00 67% * Includes share of deferred tax of jointly controlled and associated companies Source: Company data, J.P. Morgan research Swire reported headline net profit of HK$13.9B, +332% y/y. Excluding investment property revaluation gains (HK$5B), disposal gains ($1.442B) a
26、nd HAECO-related gains ($2.55B), underlying profit was HK$4.92B (+31% y/y), which is 9% below consensus of c.$5.4B (adjusted for actual reported underlying earnings from Cathay Pacific). 7 Asia Pacific Equity Research 06 August 2010Benjamin Lo, CFA (852) 2800-8598 Interim DPS of HK$1.00 was declare
27、d, +67% y/y, which is higher than the underlying profit growth rate, suggesting managements confidence of the companys cash flow outlook in 2H10. Rentals Swires gross rentals rose 9% y-y and 2% h-h, confirming the continued recovery in Hong Kong rentals since mid-2009. Office rentals rose 7% y-y, wh
28、ile retail rentals grew 10% y-y (8% y-y for Hong Kong only). Rental reversions generally remained positive. Both office/retail portfolios are almost fully let (98% office, virtually 100% retail), with 22%/28% of tenancies (by floor area) due to expire at end-2011. Latest spot rental rate (per sq.ft.
29、) is mid-HK$90s at One Guangzhou Taikoo Hui is scheduled to open its retail portion towards end-2010 (83% pre-let already) with office space to be completed in 2011 (50% pre-let); Chaoyang Jiang Tai (named INDIGO) should open by phases in 2H 2011; Shanghai Dazhongli remains to open in phases from 20
30、14 with site clearance and resettlement works at their final stages. Capital commitments at property division Swire spent HK$2,043MM in 1H10, and it forecasts to spend HK$3,634MM, HK$3,143MM, and HK$1,243MM in 2H10E, 2011E and 2012E, respectively. These amounts include Swires share of the capex and
31、capital commitments of jointly controlled entities. 8 Asia Pacific Equity Research 06 August 2010Benjamin Lo, CFA (852) 2800-8598 Table 5: Profile of capital commitments for investment properties and hotels at 30 June 2010 HK$m Spend Forecast period of expenditure Commitments 2013 PT raised to HK$2
32、2 Cathay Pacific (293 HK, OW) is covered by JPMs Transport analyst Corrine Png, whose Dec-11 PT of HK$22 is based on 1.6x P/BV, 1 std dev above CXs average valuation since 1998 which we view justified as CX will likely achieve above peak-cycle ROE of 23% in 2010E and 16% in 2011-12E, helped by the b
33、enign industry supply growth in the next 2-3 years. Key risks: 1) volatile fuel prices, 2) rising capex, 3) further liberalization of China-Taiwan direct flights, 4) double-dip recession. 1H10 highlights: Passenger yields rebounded most strongly on SW Pacific/S Africa (+25% y/y), N America (+21%) an
34、d European (+21%) routes. Demand on London route has recovered more quickly than other routes like France, Germany. 4ppts of the 18% passenger yield y/y rise was due to higher foreign currency revenue. (See Cathay Pacific: 1H10 Results Review, 4 Aug for details). Mgmt is optimistic on 2H10: Notwiths
35、tanding its impressive performance in 1H, 2H10 will likely be stronger h/h, in line with historical seasonality. Forward bookings suggest continued strong passenger demand. Visibility on cargo demand is low but mgmt believes that although y/y growth could slow, the underlying demand is holding up we
36、ll and all its parked cargo capacity has been brought back (with the exception of the fuel inefficient B747-200Fs). Its four A340-300s remain parked and will be returned next year when their leases expire while 1 owned B747-400 will be scrapped. New aircraft order will improve product appeal and low
37、er unit costs: Adding more B777-300ERs will boost economies of scale as Cathay already operates 18 of them and have another 12 to be delivered by 2013. The new-generation A350-900s promise substantial fuel cost savings and other efficiencies given their extensive use of light-weight composite materi
38、als and have a much smaller backlog than the B787s. The thirty A350s are scheduled to be delivered from 2016-19 while the six B777-300ERs could be delivered earlier. The purchase will be funded with internal CFs and ECA/EXIM-backed financing and CX may potentially structure some of these as sale rai
39、sing estimates and PT, 4 Aug. 11 Asia Pacific Equity Research 06 August 2010Benjamin Lo, CFA (852) 2800-8598 All Data As Of 05-Aug-10Quant Return Drivers (a Score 50% indicates company ranks above average) J.P. Morgan Composite Q-ScoreScore 0% (worst) to 100% (best) vs Industry Raw ValueValueP/E Vs
40、 Market (12mth fwd EPS) 41% 1.2xP/E Vs Sector (12mth fwd EPS) 42% 1.1xEPS Growth (forecast) 56% 29.5%Value Score 44%Price Momentum12 Month Price Momentum 50% 13.7%1 Month Price Reversion 53% 7.7%Momentum Score 50%QualityReturn On Equity (forecast) 31% 8.6%Earnings Risk (Variation in Consensus) 82% 0
41、.07 Quant Return Drivers Summary (vs Country)Quality Score 54%Earnings and (2) no part of any of the research analysts compensation was, is, or will be directly or indirectly related to the specific recommendations or views expressed by the research analyst(s) in this report. Important Disclosures L
42、ead or Co-manager: JPMSI or its affiliates acted as lead or co-manager in a public offering of equity and/or debt securities for Swire Pacific within the past 12 months. Client of the Firm: Cathay Pacific is or was in the past 12 months a client of JPMSI; during the past 12 months, JPMSI provided to
43、 the company non-investment banking securities-related services and non-securities-related services. Swire Pacific is or was in the past 12 months a client of JPMSI; during the past 12 months, JPMSI provided to the company investment banking services, non-investment banking securities-related servic
44、es and non-securities-related services. Investment Banking (past 12 months): JPMSI or its affiliates received in the past 12 months compensation for investment banking services from Swire Pacific. Investment Banking (next 3 months): JPMSI or its affiliates expect to receive, or intend to seek, compe
45、nsation for investment banking services in the next three months from Cathay Pacific, Swire Pacific. Non-Investment Banking Compensation: JPMSI has received compensation in the past 12 months for products or services other than investment banking from Cathay Pacific, Swire Pacific. An affiliate of J
46、PMSI has received compensation in the past 12 months for products or services other than investment banking from Cathay Pacific, Swire Pacific. 09182736Price(HK$)Oct06Jul07Apr08Jan09Oct09Jul10Cathay Pacific (0293.HK) Price ChartUW HK$11.7UW HK$7 OW HK$15UW HK$17 UW HK$13.7UW HK$7.3 OW HK$13 OW HK$18
47、OW HK$22Source: Bloomberg and J.P. Morgan; price data adjusted for stock splits and dividends.Break in coverage Jul 19, 2007 - Jun 09, 2008. This chart shows J.P. Morgans continuing coverage of this stock; thecurrent analyst may or may not have covered it over the entire period.J.P. Morgan ratings:
48、OW = Overweight, N = Neutral, UW = Underweight.Date Rating Share Price (HK$) Price Target (HK$) 07-Mar-07 UW 19.20 17.00 09-Jun-08 UW 16.26 13.70 14-Jul-08 UW 14.22 11.70 13-Nov-08 UW 7.73 7.30 12-Dec-08 UW 8.20 7.00 07-Jul-09 OW 10.90 13.00 05-Aug-09 OW 12.64 15.00 11-Mar-10 OW 15.20 18.00 04-Aug-10 OW 17.40 22.00 14 Asia Pacific Equity Research 06 August 2010Benjamin Lo, CFA (852) 2800-8598 0306090120150180Price(HK$)Oct06Jul07Apr08Jan09Oct09Jul10Swire Pacific (0019.HK) Price ChartOW HK$91UW HK$84OW HK$101 OW HK$82OW HK$107OW HK$106 OW HK$122 OW HK$97OW HK$68OW HK$65O
