Swire Pacific: Fair Value Estimate Lowered by 4% on Weakness at Its Property Segment

We lower the fair value estimate of narrow-moat Swire Pacific to HKD 75.00 from HKD 78.00, following a pre-blackout update with Swire Properties. This reflects weakness on the retail and hotel segments that are experiencing net tourist spending leakage as a strong Hong Kong dollar versus regional currencies weighs on mall foot traffic and hotel performance in the near term. Hong Kong and mainland China tenant sales will also see pressure given sporadic tenant upgrade works at Pacific Place mall, Taikoo Li Sanlitun North, and Taikoo Li Chengdu, but we anticipate the asset enhancement to lift tenant sales in the medium term as the stores gradually reopen from 2025 onward. Positively, management shared that the base rent portion for the mainland China malls continues to see positive rental reversion that we expect to help offset weaker turnover rent. For the office segment, we think softness in the Hong Kong office market is likely to persist before gradual absorption of excess supply in 2025 to set a stage for recovery in 2026. Overall, we anticipate Swire Pacific’s 2024 revenue to show a mild decline of 4.8% given weakness in its property segment and a lower contribution from its beverage segment due to the sale of Swire Coca-Cola USA.