The growing influence of Jardine in local stock markets

The Jardine Group of Companies including Jardine Matheson, Jardine Strategic, Jardine Cycle and Carriage, Dairy Farm, Hong Kong Land, and Mandarin Oriental has become a growing influence among the 800 over stocks listed in Singapore. Altogether, the total market capitalization the combined listed entities under the Jardine Group stands at around S$120.39 billion as of August 31, 2017. The recent inclusion of Jardine Strategic into the Straits Times Index (STI) is a testament of the growing strength of Jardine Empire in its 100 over year’s history as a major trading conglomerate.

Brief History of the Jardine Group of Companies

Jardine Matheson Co. was founded over 100 years ago on July 1, 1832 by two individuals, William Jardine, and James Matheson. Both individuals were United Kingdom citizens. According to Wikipedia, following the cession of Hong Kong under the 1842 Treaty of Nanking, the firm set up headquarters on the island.

The company started out as a trading company dealing in smuggled opium, tea, and cotton, but it soon diversified into areas including insurance, shipping and railways.

During the 1970s, Jardine Matheson was managed by the influential Keswick family. The firm’s patriarch, Sir Henry Keswick took charge of the firm, while brother, Simon took over in the early 1980s. The company is now managed by Simon’s son, Ben Keswick, and Adam Keswick, one of sons of Sir Chips Keswick.

Background of Jardine Strategic Holdings (JMH)

Jardine Strategic Holdings (JMH) Limited is a holding company and has controlling interests in Jardine Matheson, Dairy Farm, Hongkong Land, Mandarin Oriental, and Cycle and Carriage Group, a local diversified dealership distributor for Mercedes Benz, Kia Motors, and Mitsubishi Motors vehicles.

Fundamentals of JMH

According to research provided by Bloomberg.com, and Reuters.com. Jardine Strategic Holdings (JSH) currently trades at trailing 12-month (ttm) price-earnings (P/E) multiples of 6.65, and its dividend yield is 1.55 per cent as compared to the industry average of 2.19 per cent. On a five-year average, the company yields around 1.43 per cent, as compared to 2.40 per cent for the industry.

While miniscule in terms of JSH’s dividend yield compared to the industry, the 5-year dividend growth rate is 7.72 per cent, compared to the industry’s minus 3.46 per cent dividend growth rate for the same time period. This translates to a dividend payout ratio of 12.17 times for the company.

On the top and bottom line growth for JSH, total sales in the most recent quarter (MRQ) rose by 26.5 per cent, while net profits rose by a bigger percentage at 298.8 per cent, largely due to better profit performances from Hongkong Land, whose commercial interests performed well and it recorded higher level of sale completions in its development properties. Astra, its Indonesia motorcycle business, performed well, and Permata Bank performed well as well.

Jardine Matheson business performed well in its directly held businesses. Dairy Farm came in with mixed performance, and Mandarin Oriental’s results were impacted primarily by its London hotel renovation. The contributions from Jardine Cycle & Carriage’s non-Astra interests were lower.

Technical Analysis of JSH

Source: Phillip POEMS 2.0 Trading Platform (One-year weekly chart of Jardine Strategic Holdings (JSH), September 11, 2017)

At the closing price of S$44.25 per share on September 11, 2017, the stock is trading close to its 52-week high of S$44.95.

Looking closer on the chart, we note that the stock is trading at above the 50-day and 100-day moving averages (MAs), and the relative strength index (RSI) (not shown on the diagram) stands at around 65 to 66. It is somewhat close to an ‘Overbought’ situation where the benchmark for that level is 70.

The trading volume is not substantial as average turnover stands at around 320,473 shares. The total volume traded as of close of regular trading on September 11 stood at around 360,000 shares.

Research coverage of JSH

With the impending inclusion of JSH onto the Straits Times Index (STI) on September 18, there is no active research coverage for JSH.

Our thoughts on Jardine Strategic Holdings

We think that at the current price of S$44.25, it is on a track to move higher, and might test the 52-week high. We think that it is a positive market event for Jardine Strategic Holdings to be included in the Straits Times Index (STI) on September 18.

There is no doubt that at 6 to 7 times earnings multiples, the conglomerate looks quite attractive. However, we think that there is a need to understand the fundamentals of each of its subsidiaries before making any investment decision. We think that it is important to understand the individual parts of the business like Dairy Farm, Mandarin Oriental, Astra International, and Jardine Matheson among others to determine a fair valuation for JSH as a whole.

We noted that it is expected to be quite a comprehensive task, and we do not think that the 6 to 7 times P/E necessarily values the company meaningfully. We urge readers and investors to carefully understand the conglomerate company, and the individual companies JSH holds before making an investment decision.

We would also like to highlight the lack of research coverage, and the relatively low trading volume for the stocks as some of the factors to take into consideration before making an investment decision on JSH.

In summary, it is important to understand the business of JSH, and how individual businesses contribute to the total value of JSH. Good luck!

Disclaimer of Opinion

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