Swire Pacific Remains Undervalued but Lacks Near-Term Catalyst

Swire Pacific’s first-half result does not change our long-term view on the company. Excluding one-offs and revaluation losses, underlying profit was HKD 786 million, compared with a loss of HKD 123 million in the same period last year. While the dividend policy of delivering sustainable growth in dividends remains unchanged, the payout calculation will be amended going forward. Swire will now pay out at least half of recurring underlying profits, up from the previous policy of half of earnings, and will exclude earnings from Cathay Pacific but include dividends received from that company. Assuming the associate income is positive and all else being equal, the change on associate income should result in lower dividend on an absolute basis but better align cash flow received from the associate. First-half dividend of HKD 1 per share was higher compared with HKD 0.70 in the same period last year. Our full-year dividend forecast of HKD 2 per share is unchanged and represents a dividend yield of 4%.