JSL.SG - Jardine Strategic

[thepupil]

A search yields a few mentions here and there of Jardine Matheson and Jardine Strategic, but no dedicated thread with too much discussion.

 

So here it goes.

 

I think a good starting point is this November 2009 (10 years ago) writeup.

https://valueinvestorsclub.com/idea/Jardine_Strategic/0955912015

 

In 2009, the author of this not incredibly detailed writeup pointed to the company's record of long term value creation, low leverage (at each sub and holdco) and NAV per share in the low 30's relative to the stock price of 17. Buyers of the pitch did okay as the stock hit $40 in 2013 for a little more than a double in 4 years. The stock has since stalled, falling to $31.9 from its August 2017 high of $43. So the stock trades at $32 or 100% of VIC pitch 2009 NAV. To put some more actual numbers on it.

 

Jardine Strategic trades for $34 billion USD. What do we get for $34 billion?

 

50% of HongKong Land (HK & Singapore Marina Bay, and other Asia Real Estate). Third Avenue likes the company's Singapore assets and believes the company trades at a 70% discount to NAV. Let's just go with market value instead.

At market value, this is worth $6 billion

https://thirdave.com/wp-content/uploads/2019/11/2019-Q3-TAREX-Shareholder-Letter.pdf

78% of Dairy Farm convenience store/food retailer, another $6 billion.

 

78% of Mandarin Oriental. I own MAND SP separately but in very small size. it trades at a 70% discount to NAV and is unlevered, and owns trophy hospitality assets around the world. Its most valuable asset is a HK development site. The company tore down its most profitable hotel (the Excelsior) to develop an office building in HK. The address is prestigious, but in the end this is in HK which is scary. Let's just take market value of $1.6 billion. I like that the company is transitioning to more of a management contract model versus fully owned.

75% of Jardine Cycle and Carriage, a conglomerate in its own right, heavily tilted toward autos and Indonesia. That's another $9.5 billion.

57% of Jardine Matheson (which in turn owns 85% of Jardine Strategic): $23 Billion

 

All in the public stakes add up to $46 billion. No hold debt from what I can tell, so that's $34/$46, a 27% discount to the public value of its holdings.

 

Page 40 of the interim report goes about it another way, where they show the market value of Jardine Strategic's holdings as if you cancelled the shares of Jardine Strategic held by Jardine Matheson but on a look through basis are owned by Jardine Strategic.

https://www.jardines.com/assets/files/NewsAndEvents/corporate-press-releases/jardine-strategic/int19.pdf

Market Value Basis Net Assets ‘Market value basis net assets’ are calculated based on the market price of the Company’s holdings for listed companies, with the exception of the holding in Jardine Matheson which has been calculated by reference to the market value of US$26,906 million (2018: US$29,706 million) less the Company’s share of the market value of Jardine Matheson’s interest in the Company. For unlisted companies a Directors’ valuation has been used.Net asset value per share is calculated on ‘market value basis net assets’ of US$34,480 million (2018: US$38,763 million) and on 564 million (2018: 566 million) shares outstanding at the period end which excludes the Company’s share of the shares held by Jardine Matheson of 544 million (2018: 542 million) shares.

 

The above gets you to $61 per share, relative to the current price of $32 per share.

 

So we have an unlevered asian conglomerate at 1/2 of NAV with mostly low levered holdings. A common thread of the holdings is that they are well off from peak due to poor sentiment and/or fundamental issues (such as exposure to Hong Kong or the auto sector), but that they've been long term value creators over time. I like the double discount aspect here.

 

Like 1 HK, I am at the point of starting to build a small position as part of an asian conglomerate basket. While these things "always" trade at a discount, I believe their cheapness relative to global alternatives has become more pronounced with the trade war, political unrest in HK, and the increase in prices of alternatives.

 

I don't have a real strong view on Matheson vs Strategic.

[Spekulatius]

I like it too, but I don’t like the HK exposure. The valuation of RE there is quite rich a d I think we could see very meaningful multiple compression there , if the chinese mainlanders get their way. I think the Keswicks (founding family) are more to be trusted than most other owners in Asia.

 

Matheson pays a higher dividend than Strategic.

[thepupil]

https://superfluousvalueblog.wordpress.com/2020/10/21/jardine-strategic-value-managers-going-cheap-part-2/

 

I think this blog post makes the case well. the stock is up 20% or so since but still SUPER cheap.

[rosemontseneca]

Good write-up.  This is my largest position.  Multiple layers of NAV discount and conservative balance sheets throughout the complex let you sleep well at night.  Not sure when/how the discount closes, but I have a hard time seeing how this stock doesn't work over the long term barring US/China WWIII or something equally catastrophic. 

[thowed]

I've dipped into the holding cos before, but it always just makes my head spin.  I feel a bit more comfortable with some of the subsidiaries, though they tend to be more expensive.

 

My key question is the state of the Keswick family.  I fear that they've got a bit complacent - and will there be much fire in the bellies of the next generation?  The competition is heating up.

 

Also from memory, they have not treated minority investors particularly well historically (presumably a major reason for the discount).

 

Closer to the ground, the subsidiaries generally have a decent reputation, and have made strategic investments into some of the best companies in e.g. Vietnam (obvs this barely registers at holding co level) though they can have a tendency to overpay.

 

I suppose on a ten-year view I'd still rather own TenCent, which is almost like a modern HoldingCo, with strategic investments in almost every buzzy Tech Co, as well as a terrific core business, and good management.  Though you could own TenCent and a Jardine as a balance.

[formthirteen]

Thank you. I'm trying to kill the idea. Will this company exist after everything is uploaded to the metaverse? Will the $3 billion in FCF be worth anything when every transaction in the metaverse is done with BTC on the lightning network? Is the market right? I ask this as an owner of CK Hutchison :P

[thowed]

Off-topic, but Form13 - neat website.  I normally use a mix of Stockzoa and Dataroma, and yours looks more comprehensive.

[formthirteen]

Off-topic, but Form13 - neat website.  I normally use a mix of Stockzoa and Dataroma, and yours looks more comprehensive.

 

Thank you. I really appreciate the feedback. I hope to add more features in the near future, financials, search by ticker, etc.

[thepupil]

just wanted to point out that Jardine Matheson announced a $500mm buyback on 10/23.

 

It's a $41B company, so that's not huge as a % of market cap, but with the circular JS ownership, it's a a ~$17 billion float, so it's more significant in that context).

 

I'm not familiar with Singaporean securities laws, but Jardine Matheson is issuing press releases every day about how much they're buying back (presumably required by law). They are hoovering in 10-20% of volume every day, most recently buying 107K shares ($5.9mm) on December 11th, when a total of 597K traded (assuming bloomberg data is correct). 18% of volume.

 

this is in line with what they've been repurchasing on a daily basis. there are roughly 250 trading days in a year IIRC so $4mm / day is equivalent to $1B on an annualized basis.

 

JM reduced its net shares outstanding (accounting for shares held by subs) by 2.5% in 1H2020 and JS by ~1%, but I think 2H2020 and 1H2021 will potentially be significantly more.

 

for a sleepy asian conglomerate that always trades at a discount, these guys are buying back pretty aggressively.

 

see page 25/26:

https://www.jardines.com/assets/files/NewsAndEvents/corporate-press-releases/jardine-matheson/int20.pdf

https://www.jardines.com/assets/files/NewsAndEvents/corporate-press-releases/jardine-strategic/int20.pdf

 

have increased position and am about 1/3 Matheson, 2/3 Strategic. Like Strategic for the pure discount, like Matheson for the divvy / where the Keswicks hold their money (takeunder insurance even though the structure hasn't changed for like 40 years lol)

 

 

 

 

 

[Ronchong]

just wanted to point out that Jardine Matheson announced a $500mm buyback on 10/23.

 

It's a $41B company, so that's not huge as a % of market cap, but with the circular JS ownership, it's a a ~$17 billion float, so it's more significant in that context).

 

I'm not familiar with Singaporean securities laws, but Jardine Matheson is issuing press releases every day about how much they're buying back (presumably required by law). They are hoovering in 10-20% of volume every day, most recently buying 107K shares ($5.9mm) on December 11th, when a total of 597K traded (assuming bloomberg data is correct). 18% of volume.

 

this is in line with what they've been repurchasing on a daily basis. there are roughly 250 trading days in a year IIRC so $4mm / day is equivalent to $1B on an annualized basis.

 

JM reduced its net shares outstanding (accounting for shares held by subs) by 2.5% in 1H2020 and JS by ~1%, but I think 2H2020 and 1H2021 will potentially be significantly more.

 

for a sleepy asian conglomerate that always trades at a discount, these guys are buying back pretty aggressively.

 

see page 25/26:

https://www.jardines.com/assets/files/NewsAndEvents/corporate-press-releases/jardine-matheson/int20.pdf

https://www.jardines.com/assets/files/NewsAndEvents/corporate-press-releases/jardine-strategic/int20.pdf

 

have increased position and am about 1/3 Matheson, 2/3 Strategic. Like Strategic for the pure discount, like Matheson for the divvy / where the Keswicks hold their money (takeunder insurance even though the structure hasn't changed for like 40 years lol)

 

Hey thepupil, Singaporean here. I benefitted from your post and am trying to give back here (even tho it may not be much!). Yes, the company and all insiders of a singapore-listed company (including their directors/major shareholders etc) are required by law to disclose how much shares they have bought within 3 days IIRC even if it's only $1. So you can see how ridiculous it become when an illiquid company tries to buy back it's own shares.

 

I have not been closely following Jardine Matheson/Strategic but I have shopped at the supermarket/drug retail store they own, my family bought their car at JM dealership and I have patronaged their hotel chain before so let me know if there is anything you want to know and I'll try my best to answer them!

[thepupil]

thanks rongchong!

 

I did some incremental work on Jardine Cycle & Carriage this weekend and think it may be worth a small direct allocation, though the context was just verifying that Strategic's NAV components aren't entirely crazy.

 

first let's talk long term. 

 

Look at this classical EM boom and bust:

with divvies reinvested

1986    12.6% / yr

20 year 14.3% / yr

10 yr    -3% / yr

5 yr      -6.4% / yr

3 yr      -18%  / yr

YTD      -32% / yr

 

From what I can tell, Cycle & Carriage has a listed NAV of $8.5 billion

$8 Billion Astra

$1 billion Vinamilk (VinaMilk is an EM compounder gem, 24% / yr USD returns since 2006, 12% / yr last 5 yrs) 

Some odds and ends, less $1.5B holdco debt = $8.5B NAV.

 

It trades for $5.8 billion, about 70% of its listed NAV. assuming i did all the currency conversions correctly.

 

the largest component of NAV is Astra, an automobile / motorcycle heavy indonesian conglomerate. It does a a lot of things, including some I really don't like (palm oil plantations) but it's mostly auto / motorcycles.

 

Cycle and CArriage EPS has averaged $2.2 over the past decade (troughing in covid and in 2019 and peaking in 2012 (EM bull market, currency tailwinds instead of headwinds). Over the past decade Cycle and Carriage has paid out $9.2 in dividends. I have no idea as to the veracity of these projections, but bloomberg has 2021E at $1.6.

 

So at $19.6, Cycle & Carriage is at 12.4x 2021 earnings with a history of paying out its earnings to shareholders, an undemanding valuation. Its historical PE is 10-15x (EM bull markets is when it gets spicy). 

 

if you don't like anything to do with China, but like ASEAN and want to own Indonesian and Vietnamese assets with a singapore listing / governance wrapper, this isn't bad.

 

I found this guy's commentary helpful (note the stock is down about 40% since this talk in 2018)

 

Why I Might Hold Jardine Cycle and Carriage Till I Die?

 

I also am only starting to get a feeling for how scary Hongkongland is lol. in Feb 2020 thay paid $4.4 billion for a giant Shanghai development site in the bund. But it trades for 27% of NAV so to some extent is price in (of course some scenarios aren’t prices in like all out govt seizure)

 

I know Mandarin Oriental well, Dairy Farm is next. the unlisted co's are the big x factor and difficult to analyze (Jardine Pacific and Jardine Motors).

 

 

 

 

[rosemontseneca]

A few thoughts: 

 

- I would like Jardine Cycle & Carriage too if it weren't for Jardine Strategic being cheaper.  In addition to Astra and Vinamilk, a few of the other odds and ends are listed too, including Siam City Cement (Thailand), REE (Vietnam) and Tunas Ridean (Indonesia).  Those add another 750mm of listed NAV by my math.  All together, agree with your take that it's a good way to participate in two attractive growth stories (Indonesia and Vietnam) in a value-disciplined way. 

 

- I think Hong Kong Land is an interesting asset that probably has more upside than downside at these levels.  From their 1H report, it appears that they were able to farm down the Shanghai West Bund project to two partners who reimbursed / prefunded 2.6bn thereby reducing the initial 4.5bn HKL outlay.  I also think the Singapore assets (Marina Bay Financial Center) are world-class and may help cushion the blow from weakness in Hong Kong. 

 

- Agree that Jardine Pacific is more of a black box, but they seem like reasonably high-quality businesses. Financial performance held up reasonably well in 1H-2020.  Haven't analyzed them line by line, but I feel good enough about assigning a 12-15x multiple to their 2019 earnings in my Jardine Strategic NAV math.

[thepupil]

agree on Marina Bay, I'd pay NAV for the singapore RE assets, just to say "you know I own that one and that one" and point to various buildings as I sip a $20SGD Singapore Sling atop the Marina Bay Sands, as every dumb tourist must do at least once! 

 

I think with the trajectory of HK, you have to be bullish of Singapore as the go to expat financial center of Asia, but that's not really a positive for HKL given it's HK exposure. I have worked with Mainland based funds at a past job who have said "in a decade we won't need Hong Kong, all the action is in Shanghai and the tech/innovation is in Shenzen", in some ways I think the giant Shanghai development is a bet on that. That said, until that happens, HKL's HK office is really high quality. I have been to HK for meetings where it seems like you just go up and down the elevator at Two Exchange Square because that's where a lot of the financial firms are.

 

creating that stuff for 20% of NAV (however steamy that NAV may be)  through JS doesn't entirely suck.

 

 

[thowed]

I know some Asian fund managers who seem to rate Dairy Farm - the new-ish CEO, Ian McLeod, has a good reputation for a previous turnaround.

 

I will also suggest that REE is another great business in Vietnam.  I think they wanted to own more of it, but it's at the Foreign Ownership Limit, and none of the other 'Foreigners' wanted to sell as it's pretty cheap, and another solid compounder.

[thepupil]

Isn't REE only $190mm though?

 

I've attached my Cycle & Carriage NAV which excludes the namesake Cycle & Carriage businesses since those aren't listed.

[elliott]

many real estate companies with properties in Hong Kong trade at a discount to NAV, a very important discount in some cases.

as Spekulatius said, valuation are very rich in HK, I dare say ridiculous. I usually look at cap rates, when dealing with geographies such as HK.

[thepupil]

creating that stuff for 20% of NAV (however steamy that NAV may be)  through JS doesn't entirely suck.

 

agreed.

 

If buying JS was just about HK property, then I don’t think it’s be that interesting (and HKL can be bought directly, as can Mandarin Oriental which also has significant HK property exposure because of the big writeup in their NAV from the Excelsior a few years back)

 

Cap rates are ridiculous and rents have peaked. HKL’s current price implies about 64% declines in asset values (73% equity) from the ridiculous prices, but that’s not the right way to look at it because HKL will always exist and has always traded at a discount.

 

As part of the Jardine conglomerate, as long as there’s no sort of seizure from the opium runners moment, I think the Hong Kong property stuff is an option on change in sentiment, but would t want to rely on that. The other day I was trying to estimate why Jardine Strategic only grew NAV (market value based not crazy cap rate based) by about 5%/ year for the past decade or so and HKL was a big componentof that as the stock is at 2009 levels.

 

 

[thepupil]

just wanted to point out that Jardine Matheson announced a $500mm buyback on 10/23.

 

It's a $41B company, so that's not huge as a % of market cap, but with the circular JS ownership, it's a a ~$17 billion float, so it's more significant in that context).

 

I'm not familiar with Singaporean securities laws, but Jardine Matheson is issuing press releases every day about how much they're buying back (presumably required by law). They are hoovering in 10-20% of volume every day, most recently buying 107K shares ($5.9mm) on December 11th, when a total of 597K traded (assuming bloomberg data is correct). 18% of volume.

 

this is in line with what they've been repurchasing on a daily basis. there are roughly 250 trading days in a year IIRC so $4mm / day is equivalent to $1B on an annualized basis.

 

JM reduced its net shares outstanding (accounting for shares held by subs) by 2.5% in 1H2020 and JS by ~1%, but I think 2H2020 and 1H2021 will potentially be significantly more.

for a sleepy asian conglomerate that always trades at a discount, these guys are buying back pretty aggressively.

 

Just to update here.

 

As a reminder Jardine Matheson owns the vast majority of Jardine Strategic which in turn owns the majority of Jardine Matheson. So one can look at both "gross shares outstanding" (how many shares does Jardine Matheson [or Strategic] have) and "net shares outstanding" which accounts for Matheson's (or Strategic's) self-ownership.

 

Matheson has 733 million shares outstanding on a gross basis and 371 million on a net basis as of the June 30th 2020 interim report

https://www.jardines.com/assets/files/NewsAndEvents/corporate-press-releases/jardine-matheson/int20.pdf (Page 25)

 

I downloaded all of their daily disclosed repurchases.

 

I estimate that since the last report, Jardine Matheson has repurchased 13.5mm shares, or about 1.9% of gross shares and 3.7% of net shares.

 

What is perhaps more interesting is that since December 1st 2020, this number is 0.8% and 1.6%, respectively. On January 5th, Matheson bought back 0.6% of net shares outstanding (2.3 million shares, about 90% of volume that day lol, Singapore clearly doesn't have the % of daily volume limit for corporate share repo's)

 

In the last month or so, they've been buying back at a 14% annualized (of net shares), pace. In the last 6-7 months, its' more like 7%.

 

I repeat that the current pace seems pretty cannibalistic for a sleepy asian conglomerate.

 

[rosemontseneca]

The intercompany math tends to make my head hurt, but how does JM finance the repurchases?  JM sources of cash consist of 1) JS shares paying a 1.5% divvy (~$175mm net to JM) and 2) Jardine Pacific / Jardine Motors (call it $200mm).  They use that cash to 1) pay a 3% dividend on their own shares ($600mm) and 2) repurchase shares aggressively.  They must be borrowing at the JM level to do that? 

[thepupil]

The intercompany math tends to make my head hurt, but how does JM finance the repurchases?  JM sources of cash consist of 1) JS shares paying a 1.5% divvy (~$175mm net to JM) and 2) Jardine Pacific / Jardine Motors (call it $200mm).  They use that cash to 1) pay a 3% dividend on their own shares ($600mm) and 2) repurchase shares aggressively.  They must be borrowing at the JM level to do that?

 

One of my frustrations with the Jardine Complex is I find it difficult to tell where precisely the liquidity resides (Strategic is easier to parse), but a $700-$800mm repurchase  is not a huge amount considering the following (which you already are aware of I'm sure)

 

The balance sheet and liquidity of the Group remain strong. Across the Group, extensive

actions continue to be taken to manage costs, preserve cash and increase liquidity, including

the reduction, suspension or deferral of non-essential operating and capital expenditure.

Shareholders’ funds were US$28.9 billion at 30th June 2020, compared with US$30.4 billion

at 31st December 2019. Consolidated net debt excluding financial services companies was

US$5.4 billion at 30th June 2020, representing gearing of 9%, compared with 7% at

31st December 2019. The Group had liquidity of US$13.9 billion, consisting of US$7.6 billion

in cash reserves and US$6.3 billion in unused, committed debt facilities.

 

[rosemontseneca]

Agreed, plenty of liquidity at JM. 

 

I guess I'm more interested in the opposite of that question - what does JS do with its excess liquidity?  1) They are taking in substantially more cash from their subs than they are paying out to shareholders; 2) They have no balance sheet needs; and 3) I assume the small float precludes repurchases.  Do they increase the dividend at some point, or are they building a war chest for another deal?  Does JS pay a special dividend to fund more repurchases at JM?

[thepupil]

being taken out for $33 cash. This is a take under and very accretive to Matheson. I will probably roll some proceeds into Matheson. I'm annoyed for the shares that I own in taxable, but it's a good result.

 

 

 

Jardine Matheson to Simplify Parent Company Structure

  By Melissa Cheok

 

  (Bloomberg) -- Jardine Matheson announces plans for simplification of parent        JM SP Equity

  company structure, according to an SGX filing.                                             

              Will result in single holding company with conventional structure and

              further increase group’s operational efficiency and financial

              flexibility

              Jardine Matheson to acquire 15% of Jardine Strategic Holdings issued

              share capital that it doesn’t own for cash

                            Jardine Strategic shareholders will be entitled to $33 in

                            cash for each ordinary share in acquisition

                            Share price will value the 15% of Jardine Strategic’s issued

                            share capital that Jardine Matheson doesn’t already own at

                            $5.5b

                            Acquisition expected to become effective end-April

                            Will finance acquisition through financing facility and

                            existing cash resources and lines of credit

              Company will also cancel Jardine Strategic’s 59% shareholding in

              Jardine Matheson

 

[rosemontseneca]

Ditto.  Managed to sell mine at $33.80 at the open  ¯_ (ツ)_/¯  and flipped into JM before it ran up. 

[thepupil]

Ugghhh, well now I’m just jealous. I sold @ $32.90 and bought (some) additional Matheson up 6%, but overall position smaller now, need to really sit down for a weekend and update everything.