Company Update: Portfolio expansion to drive long-term growth
- Commenced the redevelopment of Zung Fu Industrial Building and Wah Ha Factory Building in Quarry Bay
- Acquiring stakes in Yangjing and New Bund plots in Shanghai
- Gearing should remain comfortable following the recent acquisition in Shanghai
- BUY with HK$22.15 TP
Swire Properties acquired the remaining interests in Zung Fu Industrial Building and Wah Ha Factory Building in Quarry Bay in Mar-22 and Jul-23 respectively. After consolidating its ownership in these two buildings, Swire Properties has commenced demolition works. The two sites will be redeveloped into a predominantly office property with GFA of 779,000sf. Close to Taikoo Station, which is eight stops from Central, this new project should further strengthen the company’s Taikoo Place portfolio.
In Sep-23, Swire Properties entered into an agreement to acquire a 40% interest in Yangjing and New Bund plots in Shanghai for Rmb9.7bn. This marked the company’s ninth and tenth large-scale investment in China. Co-developed with Lujiazui Group, these two sites will be developed into large-scale mixed-use projects comprising of retail, office and premium residential components. Located along the Huangpu riverfront, the Yangjing plot, which was Taikoo Wharf in the early to mid-1900s, is expected to provide GFA of 0.39msm upon project completion. With total GFA of 0.6msm, the New Bund plot is opposite Taikoo Li Qiantan with synergetic benefits expected upon completion.
Including these two acquisitions, we estimate China assets make up of 31% of its gross worth and will play a crucial role in powering the company’s growth. The company should find no difficulty in funding these land acquisitions. We estimate Swire Properties’ gearing will rise by c.3.7ppts to c.14% which remains comfortable.
In the recent two years, Swire Properties has been proactively pursuing new investments in China and Hong Kong, leveraging on its expertise in the commercial market. Continued portfolio expansion should underpin the company’s long-term rental earnings growth.
Trading 68% below our assessed current NAV, the stock is attractively valued from a historical view, even after factoring in an extended office market downcycle. Estimated dividend yield for FY23 stands at 6.6% which should increase to 6.8% in FY24. We believe the stock offers good long-term investment value and hence our BUY call. Our TP of HK$22.15 is based on a target discount of 55% to our Jun-24 NAV estimate.
