Taikoo Time!
A series of coincidences draws the 🐿️ to a deep value China play. August 14th, 2024.
The eponymous Noble House of James Clavell’s novel and its 1980s NBC TV mini-series is Struan’s. Struan and Company is a fictionalized portrayal of Jardine Matheson in the early 1960s. However, it is Rothwell-Gornt, their cross-town trading house rival based on the modern-day Swire Group, that is the topic of today’s Acorn.
In this weekend’s note, the 🐿️ articulated the bullish thesis for Chinese risk assets. Link here in case you missed it.
In putting together this stripped-down list of FXI 0.00%↑ constituents I could see the makings of a very interesting basket of large liquid names with attractive valuations, high returns on capital and strong balance sheets.
However, there have been several reasons that have drawn me to do more work on the Swire Group over the past few months. The🐿️ is a strong believer in coincidences. In early June, Erik of
wrote Trying to be more like Australia Dave in which he imagined a fabulous (and very instructive) conversation with Swire Properties CEO Tim Blackburn (who happens to be an old friend of the 🐿️). Small world.Erik also regularly runs a global factor model, his proprietary ranking system of over 3,000 global stocks based on earnings momentum, valuation and price momentum. I had noticed on several occasions in the past few months that Coca-Cola bottlers around the world had been scoring very highly in his model. Guess who owns one of the largest bottlers in Greater China?
On my own trip this summer, I flew back to Europe via Hong Kong with Cathay Pacific, finally managing to make a dent in the stock of ageing Asia Miles points accumulated during the pre-pandemic years. To this rodent’s mind, Cathay is at the top of the first division of long-haul flying experiences and the airline is bouncing back hard after a very difficult period during the pandemic (and before).
Enjoy the video - the 🐿️ was not travelling with his cricket pads on this occasion!
The pieces of the jigsaw were already beginning to fall into place. However, to cap it all, as I went to grab some breakfast in the Cathay lounge at London Heathrow ahead of my flight back, who should be sitting on the table next to me in the dining room? Tim and his lovely family on their way home from holiday.
We did not have time to ‘talk shop’ but, as I just mentioned, your rodent is a strong believer in coincidences and signs. Please cut this rodent some slack - remember that even George Soros uses back pain as a trading signal.
The Swire Group companies reported their half-year results last week. There is plenty of material to review.
There is a complex web of Swire businesses that are still privately held. However, apart from a small early-stage healthcare business (hospitals), the assets within the Swire Pacific listed vehicle (19.HK and 87.HK) can be summarized as follows:
Specifically:
An 82% stake in Swire Properties (1972.HK)
A 45% stake in Cathay Pacific Airways (293.HK)
Aviation services: Hong Kong Aircraft Engineering Company Limited ("HAECO") and 50% of Hong Kong Aero Engine Services Limited ("HAESL"), a JV with Rolls Royce (unlisted)
100% of Swire Beverages aka Swire Coca-Cola (unlisted)
Swire Trading and Industrial (unlisted)
The Swire group’s offshore services business used to sit within Swire Pacific. However, this business was sold to Tidewater in March 2022. In other words, this 🐿️ (and many of my regular readers who are also fans of the ‘little boats’) still happily have a stake in those 50 PSVs and AHTS vessels!
This is a very cheap asset. Let’s dig into the larger assets, starting with Swire Properties (‘Props’)…
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