Swire Properties: Acquisitions in Shanghai Have Minimal Impact, Fair Value Estimate Is Unchanged

We maintain our fair value estimate of HKD 31 following Swire Properties’ 01972 successful bid for 40% interest in two land parcels in Shanghai. The plots of land, known as New Bund and Yangjing, are expected to be developed into mixed-use projects including retail, office, and premium residential components with a total gross floor area of around 1 million square meters. Overall, we expect limited financial impact, as the investments are small at CNY 9.7 billion, relative to Swire Properties’ size and comfortable capital position, and we only expect contribution to commence from 2026 for the New Bund project and 2029 for the Yangjing project.

We think both plots of land are in favorable locations, with the Yangjing plot close to the Lujiazui business area, and the New Bund plot in Qiantan, which the company sees as an emerging business district. The investments add to Swire Properties’ existing assets in Shanghai, which include Taikoo Li Qiantan and HKRI Taikoo Hui, which have an aggregate gross floor area of 0.2 million square meters, as well as Zhangyuan, which is managed by Swire. Historically, Swire Properties’ mainland China projects focused on retail, offices, and to a lesser extent hotels and serviced apartments, which we think have helped the company bypass the current residential market downturn.

We think including a residential portion in the two new projects might increase the risk profile, but we believe the risk is manageable given: 1) the location; 2) relatively small contribution to earnings; and 3) as the development is structured as a joint venture with an experienced state-owned developer. We think the 49% discount to our fair value estimate, which prices Swire Properties at 0.6 times price/book, as of the Sept. 28 closing price, should provide a sufficient margin of safety, but a lack of near-term positive drivers may continue to weigh on investor sentiment.