Summary

• Estimated 41% discount to net asset to value.
• 3.7% yield for B shares.
• Exposure to Asia.

Swire Pacific (OTCPK:SWRAY ) is a great way for a western investor to partake in Asia. Through its subsidiaries, it controls a Coca-Cola (NYSE:KO ) bottler, airlines, real estate, hotels, tugboats, and car dealerships. The shares are selling at a substantial discount to net asset value and offer a nice dividend too.

Swire was founded in London in 1832. Like Jardine Matheson (OTCPK:JMHLY ), which I wrote about yesterday, Swire is one of the great Hong Kong trading houses. There are two series of shares: A shares and B shares. They are equal in voting rights but the A shares are five times in capital (thus they receive five times the dividend). John Swire & Sons owns 34% of the A shares and 68% of the B shares. Aberdeen Asset Management owns 12% of the A and 12% of the B. Swire & Sons controls 60% of the voting shares. Swire has a market cap of about $20 billion US dollars. It takes 7.76 Hong Kong dollars to buy $1 US.

The Coca-Cola bottling division provides beverages for 450 million people in China, Taiwan, Hong Kong, and the US. It showed $15 billion (Hong Kong dollars) in sales in 2013. The aviation division is comprised of a controlling interest in Cathay Pacific (OTCPK:CPCAY ) and the Hong Kong Aircraft Engineering Group (OTCPK:HKAEY ). The marine services division has 106 tug boats and other vestals. The Trading and Industrial division consists of: Campbell Soup, Azko paint, car dealerships, retailing, sugar, and food. It showed $9.9 billion (Hong Kong) is sales in 2013.

Hong Kong accounting standards are a little different than GAAP. Real estate is carried at market value in Hong Kong, as opposed to purchase value minus depreciation in the US. This is nice for the value investor as it can save time when doing analysis.

The Interim 2014 report shows $219 billion in investments properties, 41 billion in property plant and equipment (including hotels), $29 billion in associated investments (publicly traded companies like Cathay Pacific) for a total of $360 billion in assets. It shows $24 billion in current liabilities plus $70 billion in non-current liabilities. Equity on the books is $264 billion. There is very little intangible assets and goodwill (two measures that show as assets that often times have no real value). So the equity value of 264 billion is not far off from the real thing. With a market cap of $154 billion, it is trading at a discount of 41.6%. That’s quite a discount!

The B shares are a little cheaper, as they receive one fifth the dividend. So the B shares have a dividend yield of 3.7% and the A shares 3.34%.

Let’s review— 41% discount to net asset value, exposure to Asia, and a dividend of 3.7% for B shares and 3.34% for A shares. That’s a pretty good value. Sure, Asia is expected to pull back, but at the right time, Swire may be a great way to partake in the Orient.

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