UBS: Raising the target price of Taikoo A (00019) to HK$87, the recurring basic profit is expected to increase by 36% in the first half of the year, and the rating is “neutral”

The Zhitong Finance App learned that UBS released a research report stating that maintaining the “neutral” rating of Taikoo A (00019), the target price of Swire A will be raised 20% from HK$72.7 to HK$87, reflecting the latest market value of Cathay Pacific and Swire Properties, and will narrow the discount to 20% (previously 30%).

UBS expects Swire's basic recurring profit of HK$6.4 billion in the first half of this year, an increase of 36% over the previous year, mainly due to Swire Properties' property development accounts and Cathay Pacific's profit performance. The bank expects Swire Properties to contribute HK$3.7 billion in basic profit to Swire, an increase of 32% over the previous year, including a profit of HK$1.1 billion from the sale of two luxury homes in Deep Water Bay; overall rental revenue is expected to remain roughly flat year over year, with the decline in Hong Kong office rents being offset by retail rents in Hong Kong and retail rents in the Mainland. Cathay Pacific expects net profit deducted from non-recurring events to increase 26% to 40% year over year under strong passenger demand and freight demand trends.

UBS raised Swire's profit forecast for 2026 to 2028 by 1% to 8% to reflect the latest forecasts from Swire Properties and Cathay Pacific, and anticipates a 19% increase in dividends per share in 2026. Assuming a dividend ratio of 50%, the bank raised its dividend forecast of 1% to 8% per share from 2026 to 2028, which means that the dividend will increase by 2% to 19% year over year. According to the bank, Swire's two residential projects in Yangjing and Qiantan, Shanghai will be profitable starting in the second half of 2026, with unconfirmed contract sales of about RMB 10 billion and expected profit margins in the middle ten digits (mid teens).

The bank expects that free cash flow and debt ratios at the parent company level of Swire will improve, mainly due to the increase in Cathay Pacific's dividend contribution and the reduction in capital expenses after HAECO's sale of ITM business and the completion of the Xiamen plant relocation. At the same time, capital expenses for the beverage sector will also decrease after the implementation of the new business in Thailand/Laos. Swire promises a recurring basic profit dividend ratio of at least 50%, and will also enhance shareholder return policies.