Jardine Matheson - CGS-CIMB Research 2020-12-01: Awaiting A Slow Recovery

JARDINE MATHESON HLDGS LTD (SGX:J36)

Jardine Matheson - Awaiting A Slow Recovery

We believe Jardine Matheson's share price has priced in short-term recovery expectations.
4Q20F performance remains weak and the road to recovery will be slow and long.
Hence, we downgrade our call for Jardine Matheson to HOLD from Add previously.

In its 3Q20 business update (no financial details were provided) on 5 Nov 2020, Jardine Matheson (SGX:J36) guided that there was some improvement in performance across many of the group’s businesses compared with 2Q20. See Jardine Matheson Announcements.
Underlying net profit for 3Q20 was down y-o-y and the group guided that its performance is expected to remain weak in 4Q20, significantly influenced by the impact of COVID-19 and the reduction of government support in 4Q20.
Jardine Matheson’s key earnings contributors are Hongkong Land (SGX:H78), Dairy Farm (SGX:D01) and Jardine Cycle & Carriage (SGX:C07).

Raymond Cheng, our HK colleague who covers Hongkong Land, notes that its HK Central office portfolio continued to register positive rental reversion in 1H20 despite rising vacancy. He reiterated his ADD call in view of its resilient investment property portfolio, coupled with attractive valuation (60% discount to NAV).
See Hongkong Land Share Price; Hongkong Land Target Price; Hongkong Land Analyst Reports; Hongkong Land Dividend History; Hongkong Land Announcements; Hongkong Land Latest News.
See recent report: HongKong Land - CGS-CIMB Research 2020-07-31: Resilient Portfolio.

For Dairy Farm, analyst Cezzane See notes that, although medium-term prospects are uncertain, sentiment for the stock is likely to improve, allowing it to trade at at least its -1 s.d. level, once recovery plays are revisited. Cezzane recently upgraded her call on Dairy Farm to ADD, with a lower target price of US$4.50 (on an unchanged 20x FY21F P/E).
See Dairy Farm Share Price; Dairy Farm Target Price; Dairy Farm Analyst Reports; Dairy Farm Dividend History; Dairy Farm Announcements; Dairy Farm Latest News.
See recent report: Dairy Farm - CGS-CIMB Research 2020-10-22: The New “Normal”; Keep BUY.

Jardine Cycle & Carriage (SGX:C07)’s performance continued to be affected by challenging trading conditions, caused by weak business and consumer sentiment, although there was some improvement in a number of its businesses q-o-q. Its key contributor Astra saw better performance q-o-q but most of the business segments remained under pressure.
See Jardine Cycle & Carriage Share Price; Jardine Cycle & Carriage Analyst Reports; Jardine Cycle & Carriage Dividend History; Jardine Cycle & Carriage Announcements; Jardine Cycle & Carriage Latest News.

We believe most of the bad news has been priced in and Jardine Matheson could re-rate back to 0.85x P/BV (historical FY00-FY1 average). However, recovery is likely to be a slow and long process; hence, we downgrade Jardine Matheson to a HOLD, with our target price now based on 0.85x FY20 BVPS (previously 0.78x FY20F P/BV). See PDF report attached below for details on Jardine Matheson's NAV estimate and target price derivation.
See Jardine Matheson Share Price; Jardine Matheson Target Price; Jardine Matheson Analyst Reports; Jardine Matheson Dividend History; Jardine Matheson Announcements; Jardine Matheson Latest News.
Key upside/downside risks remain COVID-19 impact on economic conditions in Greater China and Southeast Asia as well as US-China tensions.

William TNG CFA CGS-CIMB Research | https://www.cgs-cimb.com 2020-12-01

SGX Stock Analyst Report HOLD DOWNGRADE ADD 54.68 UP 48.610