Swire Properties: Weakness Across Business Segments; Shares Attractive Despite 21% Valuation Cut

We lower our 2024-26 earnings estimates for narrow-moat Swire Properties by 5%-8% following a pre-blackout update with the company. This reflects weakness on the retail and hotel segments that are experiencing net tourist spending leakage, as a strong Hong Kong dollar versus regional currencies weighs on mall foot traffic and hotel performance in the near term. We also raised our cost of equity assumption to reflect Swire Properties’ higher operating risk given its exposure to China’s real estate sector, bringing our weighted average cost of capital to 7.5% from 6.8%. Consequently, we cut our fair value estimate to HKD 22.50 from HKD 28.50.