Swire Pacific Earnings: Raising Fair Value Estimate by 7% on Strong Aviation Performance

We raised our fair value estimate of narrow-moat Swire Pacific to HKD 80 per share from HKD 75 after it delivered stronger-than-expected 2024 results, mainly driven by its aviation division. Recurring underlying profit fell 11% year on year, largely attributable to 11% and 42% declines in contributions from its property and beverage divisions, respectively. This was partly offset by a 31% increase in contribution from its aviation division, due to strong recovering demand for travel and cargo, as well as an increase in demand for maintenance and repair of airframes. We raised our 2025-27 earnings per share estimates by 6.8%-8.1% to factor in better operating margin assumptions for Cathay Pacific. This was slightly offset by lower contribution from the joint ventures and associates held by its property division. We expect the group to deliver 5% dividend growth in 2025, implying a dividend yield of 5.1%. While we think Swire Pacific shares are currently undervalued, we prefer Swire Properties, which is trading at a more attractive 2025 dividend yield of 7.1% and at a wider discount to our valuation.