As the global economy trundles on with its sustained recovery, Jardine Matheson Holdings J36 - (JMH) stands out as a potential winner among recovery plays in 2024.

 

JMH is a Hong Kong-based conglomerate with diverse businesses in retail, hospitality, engineering and automotive sectors across Asia.

 

Established as a trading company in 1832, the firm boasts a storied history encompassing its controversial role in the opium trade and resilience before and after World War II. In 1961, it achieved a listing on the Hong Kong Stock Exchange, with its IPO oversubscribed by 56 times.

 

Having redomiciled to Bermuda and officially incorporated its current entity in 1984, JMH secured a primary listing on the London Stock Exchange and secondary listings on the Singapore Exchange S68 - and Bermuda Stock Exchange. This move involved a delisting from Hong Kong.

 

Throughout its almost two-century operations, the company introduced several firsts, including opening Hong Kong&rsquo s first five-star hotel and establishing the first merchant bank in Asia.

 

Notwithstanding its robust history, JMH&rsquo s stock has recently underperformed, ending FY2023 ended December 2023 17.6% lower at US$41.21 ($55.27) from US$50.06 despite posting results demonstrating recovery for most of its businesses.

 

In 1HFY2023 ended June 2023, JMH reported earnings of US$566 million, 34% higher than the earnings of US$423 million the year before. If not for the loss of US$257 million under non-trading items, underlying earnings would have been US$823 million, 10% higher y-o-y.

 

The non-trading loss was due to a net fair value loss of US$482 million upon the revaluation of investment properties during the period, although this was offset by the increase of US$54 million in the fair value of the group&rsquo s other investments.

 

Following the release of the results, analysts at Macquarie Research, Citi Research and CLSA have &ldquo outperform&rdquo and &ldquo buy&rdquo calls on the stock with target prices of US$53.70, US$44.75 and US$56 respectively. The stock closed at US$40.30 on Jan 31, with a P/E multiple of 23.52 times. As at June 30, JMH had a net asset value of US$100.10.

 

Astra&rsquo s outperformance

 

While JMH did not disclose its earnings for 3QFY2023, the company announced that its business was &ldquo marginally above&rdquo the same period in the preceding year. This was on the back of strong growth from Astra International, DFI Retail Group D01 - and Mandarin Oriental but partially offset by lower contributions from Jardine Pacific and Hongkong Land.

 

JMH invested in Astra just after the 1997 Asian Financial Crisis. The Indonesia Stock Exchange-listed company is Southeast Asia&rsquo s largest independent automotive group. Operating predominantly in Indonesia, the company is a provider of a full range of automobile and motorcycle products, which is possible via partnerships with the likes of Toyota, Daihatsu, Isuzu, Honda and BMW.

 

Astra posted 20% higher y-o-y net income in 1HFY2023 at US$1.15 billion, excluding fair value adjustments. This earnings growth reflects improved performances from most of its business divisions, especially its automotive, financial services, and heavy equipment and mining businesses.

 

In 3QFY2023, Astra reported a 12% increase in underlying earnings, with solid growth from the automotive division which saw higher car and motorcycle sales as well as increased market share. Its financial division, on the other hand, benefited from the growth in automotive sales and higher lending volumes.

 

The profit from Astra&rsquo s heavy equipment and mining divisions during the quarter was flat. This was mainly due to lower coal selling prices, despite improved performances from its heavy equipment and mining contracting operations. Additionally, Astra&rsquo s agribusiness division was adversely impacted by lower crude palm oil prices.

 

Astra&rsquo s future growth will pivot on its position in the battery electric vehicle (BEV) market, say Bloomberg Intelligence analysts Lisa Lee and Fairuz Khalil. The company stands to gain from upcoming BEV launches and the expansion of Indonesia&rsquo s EV infrastructure.

 

Aldiracita Sekuritas analyst Agus Pramono agrees, pointing out that the Indonesian government&rsquo s new regulation exempting import duties and luxury tax on built-up and knocked-down EVs should help pave the way for such vehicles in Indonesia. However, it may take at least two to three years before Indonesian consumers fully accept new EV technology and brands. As such, the impact of EV incentives will be gradual, allowing Astra to adjust its business strategy.

 

Growing domestic consumption and tourism

 

Meanwhile, JMH&rsquo s retail subsidiary DFI&rsquo s underlying profits in 3QFY2023 grew by over 80% compared to 3QFY2022, with strong profit growth in the health and beauty as well as convenience divisions, which more than offset lower results in grocery retail and Ikea.

 

DFI is one of RHB Bank Singapore&rsquo s top picks for retail and food products sectors. Analyst Alfie Yeo likes DFI earnings recovery at a compelling valuation. He anticipates a recovery in FY2024, driven by sturdy domestic consumption and a pick-up in tourism in Hong Kong aside from continued economic recovery in Asean and China. The stock also presents an attractive dividend yield due to JMH&rsquo s practice of uplifting dividends back to the group level, Yeo highlights.

 

Although JMH did not release Mandarin Oriental&rsquo s underlying profits, it attributes the hospitality operator&rsquo s stronger performance to higher fee income in its management business and improved earnings from its owned hotels &mdash particularly in Hong Kong and Tokyo. The company now operates 38 hotels and 11 residences in 25 countries and territories.

 

Aside from reopening its hotel in Singapore following extensive renovation, the company had also recently signed an option to sell its interests in Mandarin Oriental Paris to SLH Hotels for EUR205 million ($297 million). The sale proceeds will go towards its general development strategy, Mandarin Oriental announced on Dec 22, 2023.

 

When it comes to JMH&rsquo s property business, the performance of Hongkong Land has been dismal. The company recorded lower underlying profit in its 3QFY2023 compared to the previous corresponding period.

 

Although Hongkong Land saw higher contributions from its luxury retail portfolio and Singapore office business, it posted lower contributions from development properties, which reflected a combination of fewer planned sales completions and slower sales in mainland China.

 

Due to persistently weak market sentiment for China&rsquo s residential properties and an overall decrease in planned sales completions for 2023, JMH expects Hongkong Land&rsquo s full-year underlying profits to be &ldquo moderately below&rdquo the figures recorded in 2022.

 

In their Jan 4 note, Morgan Stanley Research analysts Praveen Choudhary and Jeffrey Mak downgraded their call on Hongkong Land to &ldquo equal weight&rdquo from &ldquo overweight&rdquo previously amid a weak Hong Kong office outlook. Even though Hongkong Land has higher occupancy compared to its peers, the analysts expect rents in the Hong Kong office market to drop 5% in 2024.

 

JMH continues to face challenges from the global economic environment and the softening of commodity prices. Despite this, it remains confident in the economic resilience of its markets, adding that it is well-positioned to benefit from the ongoing recovery.

 

JARDINE Matheson Holdings on Friday (Jul 28) posted a net profit of US$566 million for the first half of 2023, up 34 per cent from earnings of US$423 million in the year-ago period.

 

The group attributed this to continued strong performance by Astra and DFI Retail, which marked a significant improvement in its results.

 

Earnings per share rose 33 per cent to 1.95 US cents, from 1.47 US cents previously.

 

Astra, which contributed the most to Jardine Matheson&rsquo s earnings, reported net income excluding fair-value adjustments of US$1.2 billion, 20 per cent higher than in the first half of 2022.

 

Its improved performance was seen across most of Astra&rsquo s business divisions, especially its automotive, financial services and heavy equipment and mining businesses.

 

Another top performer in Jardine Matheson&rsquo s portfolio, DFI Retail Group, also returned to the black with a net profit of US$8 million for the first half of 2023, on contributions from its health and beauty division, as well as its convenience division.

 

Meanwhile, Mandarin Oriental posted improved H1 results, with revenue rising 31 per cent to US$260.7 million, led by strong performance of its hotels in Europe and the Middle East.

 

Hongkong Land&rsquo s performance, however, was flat compared with the same period last year, as its residential development business continued to be impacted by lower planned sales completions. The property group reported an underlying profit of US$422 million for H1, marginally down from US$425 million a year ago.

 

Jardine Matheson also noted that its interest in Zhongsheng &ndash an automobile dealership in China &ndash was significantly lower than in 2022 as the business was impacted by lacklustre consumer demand in the mainstream car market and the strong performance of the electric vehicle market in mainland China. 

 

Looking ahead, the group said it remains focused on evolving its portfolio and will recycle capital towards strategic higher-growth initiatives where appropriate. 

 

It will continue investing in business opportunities, such as Astra&rsquo s deal to acquire a 90 per cent interest in two nickel mining and processing businesses as part of its strategy of diversifying into other minerals and renewable energy. 

 

Jardine Cycle & Carriage has also increased its interest in Vietnam-based Refrigeration Electrical Engineering Corporation from 33.6 per cent to 34.4 per cent through on-market purchases.

 

To boost operational excellence, Jardine Pacific&rsquo s Hong Kong Air Cargo Terminals Limited introduced robotics into some of its goods handling operations, while as part of innovation efforts, Jardine Cycle & Carriage embarked on a used car and aftersales partnership with Carro.

 

Ben Keswick, Jardine Matheson&rsquo s executive chairman, said: &ldquo We are encouraged by the results delivered by most of our businesses in the first half and are optimistic that earnings growth will continue for the remainder of the year. 

 

&ldquo The group has a strong balance sheet and will continue to focus on opportunities in its core, growing markets in Asia, to create sustainable long-term growth.&rdquo

 

Jardine Matheson declared an interim dividend of US$0.60 per share, which will be paid out on Oct 11. 

 

JARDINE Matheson Holdings : J36 -0.46% (JMH) said in an interim management statement on Thursday (May 18) that it had achieved a &ldquo strong overall performance&rdquo in the first quarter of the year ended March, but warned that challenges remain from the global economic environment and softening commodity prices.

 

In a statement published on the Singapore bourse, the company said most of its business units performed strongly in Q1 this year, compared to the corresponding quarter last year. 

 

The likes of Astra, DFI Retail Group, Mandarin Oriental and Jardine Pacific all delivered increases in underlying net profit, JMH said. It added that it remains confident in the economic resilience of its markets and believes it is well-positioned to benefit from their recovery.

 

Hongkong Land&rsquo s underlying profit in the first quarter was lower than the same period in 2022 due to reduced contribution from the development properties business, on the back of fewer planned sales completions in mainland China.

 

Jardine Pacific saw improved performance from most of its businesses in the period, compared with the first quarter of last year. 

 

Jardine Restaurants, however, was impacted by softer sales in Hong Kong and the absence of government support received last year. The disposal of the shareholding in Greatview, which was announced in late January, remains on track, subject to regulatory approvals, said JMH. 

DFI Retail Group, meanwhile, saw significantly improved year-on-year performance in the first quarter. This chiefly reflected increased profitability of its associates, in particular a much-improved performance by Maxim&rsquo s.

 

DFI Retail Group&rsquo s subsidiaries also saw improved overall performance, with a recovery in the health and beauty and convenience divisions more than offsetting lower results in the grocery retail division, as consumer buying patterns normalised compared with the first quarter of 2022 and digital investments continued. 

 

Mandarin Oriental recorded an underlying profit in the first quarter of 2023, driven by improved performance from its owned hotels and management business. 

 

JMH said Asia, in particular, benefitted from the removal of travel restrictions. Mandarin Oriental&rsquo s owned hotels performed robustly, particularly in Hong Kong, Tokyo, and Bangkok, with strong rates.

 

Jardine Cycle & Carriage reported growth in the first quarter of 2023, compared to the same period last year, principally due to a higher contribution from Astra. Jardine Cycle and Carriage holds a 50.1 per cent stake in Astra, South-east Asia&rsquo s largest automotive group.

 

Astra reported a 25 per cent uptick in underlying earnings, excluding fair value gains from its equity investments, with improvements across most divisions. 

 

Beyond Astra, Jardine Cycle & Carriage&rsquo s direct motor interests also delivered improved performance, but Thaco and Siam City Cement saw lower profits primarily as a result of challenging market conditions in Vietnam.

 

SINGAPORE shares fell marginally on Tuesday (Dec 20) as concerns over higher inflation levels and potential interest rate hikes plagued markets once again, and took a toll on investor sentiments. 

 

On the local bourse, some 954.9 million shares worth a total of S$926.2 million were traded, with losers beating gainers 318 to 228. The Straits Times Index shed 0.1 per cent or 2.64 points to finish the trading session at 3,253.97.

 

It was a sea of red in stock markets across the region. The dips were led by the Nikkei 225 index, which slipped 2.5 per cent, followed by the ASX 200, which shed 1.5 per cent. Hong Kong&rsquo s Hang Seng Index lost 1.3 per cent, while in South Korea, the Kospi closed 0.8 per cent lower. The KLCI fell 0.7 per cent.

 

SPI Asset Management&rsquo s Stephen Innes said that bearish sentiments are still prevalent among traders: &ldquo Investors are still precariously perched on the cliff edge after recent remarks from the Fed and other hawkish central banks across the globe.&rdquo

 

&ldquo The cumulative effects of global monetary policy tightening will significantly impact equity valuations and, more importantly, global growth.&rdquo

 

On the local bourse, Jardine Matheson Holdings : J36 +1.47% was the top gainer by value, rising 1.5 per cent or US$0.74 to US$51.14.

 

Lenders also booked gains on Tuesday. DBS : D05 +0.29%topped the trio, with a 0.3 per cent or S$0.10 gain to S$34.21. UOB : U11 +0.26%added 0.3 per cent or S$0.08 to S$31.04, while OCBC : O39 +0.66%rose 0.7 per cent or S$0.08 to S$12.29.

 

For the second day in a row, Nio : NIO -5.5%was the biggest loser. The stock fell 5.5 per cent or US$0.64 to US$11.00.

 

Sembcorp Marine : S51 0% was the most traded counter by volume, with just under 90.8 million shares changing hands. The stock closed flat at S$0.14.

 

Other heavily traded counters were Genting Singapore : G13 -1.59%, Golden Agri-Resources : E5H 0% and The Place Holdings : E27 -8.7%.