Shenwan Hongyuan Group Co., Ltd. has initiated coverage on SWIREPROPERTIES (01972) with a "Buy" rating. Founded in Hong Kong in 1972, the firm regards Swire Properties as a leading player in commercial property development and operation. The bank anticipates the company will benefit from structural consumption recovery, driving same-store growth and contributions from new openings, which will collectively support steady rental income and earnings growth.
Core net profit for 2025-2027 is forecasted at HKD 6.79 billion, HKD 7.20 billion, and HKD 8.05 billion, representing year-on-year increases of +0.3%, +6.0%, and +11.9%, respectively. This corresponds to core P/E ratios of 21x, 20x, and 18x for 2025-2027. Net profit attributable to shareholders is projected to be HKD 2.49 billion, HKD 4.60 billion, and HKD 7.05 billion for the same period, showing significant year-on-year growth of +425%, +85%, and +53%.
Shenwan Hongyuan's key viewpoints are as follows:
The company has a mature asset recycling model, deepening its presence in Hong Kong while accelerating expansion in Mainland China. Swire Properties was established in Hong Kong in 1972 by the Swire family, initially in dockyard engineering. Its development is divided into three main phases. The company is 83.31% controlled by the Swire family via Swire Pacific Ltd., resulting in concentrated ownership. A share buyback program for 2024-2025 totals HKD 1.46 billion, representing 1.61% of shares.
Swire Properties possesses five core competitive strengths: strategic vision that navigates cycles, coupled with a massive investment plan; prime urban flagship commercial and office assets in scarce, core locations; leading capabilities in investment, management, leasing, and adjustment of shopping malls; a phased development approach that increases equity stakes and concentrates on core projects; and a long-term track record of stable same-store growth.
The firm's substantial investment plan and steadily increasing dividends are notable. Since 2018, the company has pursued a strategy of disposing non-core assets and recycling capital. A major investment plan announced in 2022 allocates half of its funds to Mainland China, with 67% completed by the first half of 2025. Investment properties (IP) revenue constitutes 90% of the total, with Hong Kong office and Mainland China retail contributing over 70%.
The core IP business is divided into four segments. The overall Hong Kong office market remains under pressure, but the company's occupancy rates are bottoming. The Hong Kong retail market is showing signs of recovery, with a focus on increasing luxury brand presence. The Mainland China retail market is structurally divergent, with a rebound in luxury sales in the third quarter of 2025. Future strategy includes enhancing luxury brand concentration, expanding existing projects, and a concentrated opening of seven new projects in 2026-2027, which is expected to increase IP gross floor area by 84% compared to end-2025. The Mainland China office market still faces high vacancy rates, though the company's occupancy is stabilizing.
Regarding property trading, projects are located in Hong Kong, Shanghai, and Southeast Asia, with a total value of HKD 119.6 billion and an equity value of HKD 48.5 billion. Financially, the company is robust, with a net gearing ratio of 15.7% as of the first half of 2025. Using a sum-of-the-parts valuation method, a target market capitalization of HKD 179.1 billion is derived, implying a 23% upside from the current price. Risks include a slower-than-expected recovery in Hong Kong and Mainland China retail and office markets, and delays in mall openings.