Swire Pacific warns of lower full-year profit as Cathay woes linger

Hong Kong-listed conglomerate sees no sign of earnings rebound at aviation unit in second half of 2016

PUBLISHED : Thursday, 10 November, 2016, 10:52pm
UPDATED : Thursday, 10 November, 2016, 11:39pm

Hong Kong-listed conglomerate Swire Pacific said on Thursday that it expects lower full-year profit as its aviation unit, Cathay Pacific, will continue to post profit declines during the second half of the year due to overcapacity and stiff competition.

Swire said Cathay, in which it holds a 45 per cent stake, was unlikely to post better second-half earnings after it suffered an 82 per cent drop in interim profit.

“Passenger yields will remain under pressure. Cargo demand will continue to be affected by overcapacity and a fragile economy. The benefit from lower fuel prices will continue to be partially offset by fuel hedging,” it said in a statement on Thursday.

Swire, whose businesses range from aviation, property, trading and marine services, did not disclose the expected decline in its full-year profit.

The company said in August that its underlying profit, which excluded property revaluation items, fell 27 per cent to HK$3.55 billion.

It attributed the decline to poor results from its various units and the absence of profits from the sale of units at its Opus Hong Kong luxury residential development at the Mid-Levels during the period.

However, analysts were not surprised at the profit warning, given Cathay’s disappointing interim results.

“The Cathay business will continue to be an overhang on Swire’s profitability. Other sectors such as property are doing well,” said Kenny Tang, chief executive of Junyang Securities.

In August, Asia’s biggest international airline said net income for the six months to June fell 82 per cent to HK$353 million as losses from jet-fuel hedges increased and competition with mainland Chinese carriers cut passenger yields.

Swire flagged the gloomy outlook as significantly higher losses were expected at Hong Kong Aircraft Engineering Co’s Haeco Americas unit in the second half of this year.

The loss of some seat contracts and the costs of closing its line service business weighed heavily on Haeco’s profitability, it said, adding that the unit was likely to incur impairment charges of HK$280 million for 2016.

“Swire’s share of these impairment charges amounts to HK$210 million,” it said.

The company also said it incurred impairment charges of about HK$2.31 billion at its Swire Pacific Offshore unit, which would erode its full-year profits.

Swire said all these factors would have “a material adverse effect on the consolidated underlying profit attributable to shareholders for 2016”.

But businesses in the property, beverages, trading and industrial divisions remain broadly stable.

Bocom International analyst Alfred Lau said the firm maintained a cautious outlook on Swire.

Aviation, oil and trading, which accounts for more than two-thirds of Swire’s businesses, were under great pressure from various reasons such as oil price changes and competition, he said.

“Property is holding up at the moment, but its Island East portfolio may need to be prepared for a potential relocation by its tenants amid new supply in Kowloon East,” said Lau.

Shares in Swire rose 2 per cent to HK$81.25 on Thursday.