UBS has released a research report maintaining a "Neutral" rating on Swire Pacific A (00019) and raising its target price by 20% from HK$72.7 to HK$87. This adjustment reflects the latest market values of Cathay Pacific and Swire Properties, with the discount narrowed to 20% from the previous 30%.

UBS expects Swire Pacific's recurring underlying profit for the first half of this year to reach HK$6.4 billion, representing a 36% year-on-year increase. This growth is primarily driven by profit recognition from Swire Properties' property development and the earnings performance of Cathay Pacific.

The bank estimates that Swire Properties will contribute HK$3.7 billion in underlying profit to Swire Pacific, up 32% year-on-year. This includes an HK$1.1 billion profit from the sale of two luxury homes in Deep Water Bay. Overall rental income is expected to remain roughly flat year-on-year, as a decline in Hong Kong office rents is offset by gains in Hong Kong retail rents and mainland China retail rents.

For Cathay Pacific, UBS forecasts a 26% to 40% year-on-year increase in recurring net profit (excluding non-recurring items), supported by strong passenger demand and favorable cargo trends.

UBS has raised its earnings forecasts for Swire Pacific for the 2026 to 2028 period by 1% to 8%, reflecting updated projections for Swire Properties and Cathay Pacific. It also anticipates a 19% increase in earnings per share (EPS) for 2026. Assuming a dividend payout ratio of 50%, the bank has raised its EPS forecasts for 2026 to 2028 by 1% to 8%, implying dividend growth of 2% to 19% year-on-year.

The bank notes that Swire's two residential projects in Shanghai's Yangjing and Qiantan areas will begin contributing profits from the second half of 2026. Unrecognized contracted sales for these projects total approximately RMB 10 billion, with profit margins expected to be in the mid-teens.

UBS expects an improvement in Swire's free cash flow and debt ratio at the parent company level. This is mainly due to increased dividend contributions from Cathay Pacific, reduced capital expenditure following HAECO's sale of the ITM business and completion of the Xiamen plant relocation, as well as lower capital spending in the beverages division after new business initiatives in Thailand and Laos. Swire's commitment to a dividend payout ratio of at least 50% on recurring underlying profit is also seen as a factor enhancing shareholder returns.