Swire Properties core net profit up 58.6% to HKD6.93b

But here's why it missed analyst's estimates.

According to Maybank Kim Eng, Swire Properties (SP) reported a set of inline FY12A results after morning trading session yesterday. Adjusted core net profit rose 58.6% YoY to HKD6.93b, 2% below Maybank's expectations but 2% above consensus estimates. 

Here's more:

The slippage was mainly due to higher-than-expected start-up costs at INDIGO Beijing. Final DPS of HKD0.38 is in line with our expectations, bringing FY12A DPS to HKD0.60, a 2.2% historical yield and 50% core payout.

Net profit growth was mainly attributable to property trading (development) profit of HKD1.9b, from the sale of 98 units of AZURA in HK. Occupancy at SP’s HK office portfolio (47% of group GAV) stood at 97-100%.

This reflects the continuing decentralisation of the HK office market, and the increasing popularity of SP’s Island East/Grade A offices in subprime districts. 17%/18.5% of outstanding leases (in GFA terms) will expire in 2013/2014, respectively.

We believe that SP’s 38% share price rally since we initiated coverage (or 59% surge from its 18 Jan 2012 listing vs the HSI’s +22% over the same period) has largely priced in the strong but moderating rental growth in HK.

Management is cautious on the outlook for HK offices, as demand from the financial services segment remains soft. SP’s high occupancy could see it experience a less severe correction in office spot rents vs the market, in our view, while its Island East portfolio will enjoy stronger growth and demand.

Besides, earnings at its property trading segment, largely exposed to the HK luxury residential sector, are expected to be volatile amid policy overhang.

SP has five developments to be completed over the next four years, with an attributable GFA of 668k sq ft. Except for a small development in Lantau, we expect that achieved ASPs from these luxury projects may miss market expectations.