The Jardine enigma

SOME of us get excited by startups; others, by slightly more mature firms.

But among the hoi polloi of listed companies here, the venerable Jardine behemoth deserves a special mention, even though no brokers cover them.

Jardine Matheson, the ultimate holding company for the Jardine empire and a Straits Times Index (STI) constituent, is powering to new highs amid a buoyant stock market. The firm has survived and prospered through the last two centuries of wars, revolutions, takeover attempts and political earthquakes.

Today, its tentacles extend over South-east Asia and Greater China. The group's top three business segments are property, motor vehicles and retail and restaurants. It also has businesses in insurance broking, financial services, engineering, construction, mining and hotels (See sidebar).

Asked about life in such a massive, diversified conglomerate, an employee told The Business Times that the group does have common initiatives that bind employees together, such as its mental health charity, Mindset. But the day-to-day experience of a Jardine employee is probably not too different from that of other counterparts in the industry.

"If you're in Giant, your daily experience probably isn't too different as someone in NTUC Fairprice or Sheng Shiong. If you're in Cycle and Carriage, probably not too different from Borneo Motors," he said.

Jardine Matheson's modern form is quite different from its beginnings in 1832, when it was founded as a trading house by two Scots, doctor-turned-opium trader William Jardine and another trader, James Matheson.

The company's beginnings involved no small amount of controversy. For example, Dr Jardine was one of those who persuaded the British government to wage the First Opium War on China to protect its trade interests - which eventually resulted in the ceding of Hong Kong to the British.

Some 150 years later, the Keswick family, descendants of Dr Jardine, would get into trouble with China in 1992 for backing certain political reforms in Hong Kong prior to the territory's 1997 handover back to China.

The family has since made its peace with China, though it decided in 1994-5 to pull the Jardine group out of Hong Kong to list in London and Singapore instead.

And after takeover attempts from the 1980s to the early 2000s, a cross-holding structure put in place effectively lets the Keswicks exert their influence over their business empire with a relatively small stake.

And what an empire it is! Annual revenues of all its subsidiaries, associates and joint ventures add up to some US$70 billion, more than the 2015 gross domestic product (GDP) of Myanmar (US$63 billion), Bulgaria (US$50 billion), and even perhaps a quarter of Singapore's roughly US$300 billion.

The Jardine Matheson holding company records revenue of about half that, at US$37 billion. Take away all its expenses, operating costs, taxes, and profits due to minority interests, and what is left behind for shareholders is a cool US$1.4 billion. Out of that, shareholders get some US$1 billion in dividends every year, or US$1.45 a share.

An ignored colossus

In Hong Kong, the Jardine group can be benchmarked against other colonial trading houses such as Swire, which owns Hong Kong flagship carrier Cathay Pacific, and Hutchison Whampoa, which owns giant healthcare chain Watsons.

It is well covered among international brokers there, such as JP Morgan, UBS, Macquarie, Nomura, Morgan Stanley, Goldman Sachs and Credit Suisse.

But in Singapore, no local brokers cover them. Few investors, it seems, have an interest. This is despite Jardine Matheson generating a whopping 4,359 per cent total return with dividends reinvested from 1991 to end-March 2017, or a compounded 15.6 per cent a year. The stock also often determines moves on the STI.

What gives?

Many market players are bound by policies not to comment publicly on specific companies. But those who agreed to be interviewed by BT point to the perception that the group is far away in Hong Kong, that management is not interested in building investor relations, the difficulty of valuing the firm, the relatively small public float, and its high absolute share price.

True to form, the company declined approaches by BT to interview its executives. One preferred to steer the conversation to the group's philanthropic activities.

Another, Jardine Matheson's group head of corporate affairs, Esther Wong, said in a recent email: "While we appreciate your paper's interest in the group, our group businesses' performances, and the group's perspectives on the business conditions and prospects can be found in our results announcements which can be found on our website."

A broker noted that flows into the big holding companies Jardine Matheson and Jardine Strategic tend to be due to investors allocating to the STI as a whole, he said, instead of anybody being excited by a fundamental story for the Jardine group.

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He said management might prefer to stay away from the media or from financial analysts because they don't really require funds from the capital market. "They don't have a history of fundraising. So they don't need to entertain all these people, no need to do roadshows."

But for an analyst to cover the stock, access to management is important as one can have more confidence in expressing an opinion on whether to buy or sell. "Otherwise, if whatever forecast you come up with goes wrong, you can't find out why you're going wrong or how to correct it," he said.

A research head said that it might not be the case that management is deliberately being unfriendly, but they are not reaching out.

"I suspect they don't have briefings here, I have not been invited to attend any of their briefings," he said.

For the Jardines to be covered, a concerted effort has to be made by stakeholders such as local brokerages as well as the company. The name "Jardine Matheson" might also not have an easily-identifiable ring to it like an "SIA", "CapitaLand" or even "Kimly" would, he said.

And in any case, they might be well covered enough already. "There are clients who buy independently. We still see the volume. And there are ample research reports out there (from international houses)," he said.

Tightly held firm

Among wealth managers, liquidity could be a concern. Clients have also not been interested in the firm as it is tightly held, said a senior analyst.

"The dividend yield is not great, the stock is thinly traded, the average volume is so low," he said.

Perhaps Jardine Matheson is too complicated a stock, and too diversified such that one segment might do well while another won't. "They are so big, in financial services, supermarkets, engineering and construction, cars, insurance broking, property, hotels. It's quite difficult to get a sense of what each of the parts are worth and what kind of discount one should apply," he said.

Then there is just a puzzling apathy. A former research head, who used to cover Cycle & Carriage before it was acquired by the Jardine group, shrugs: "Not too sure why I hardly look at the group. Missed them out all these years."

Jardine announcements, for that matter, paint a reasonably positive outlook, especially in its top three segments of Astra, Dairy Farm and Hongkong Land which contribute some 70 per cent to Jardine Matheson's 2016 profit.

Astra, an Indonesian conglomerate that the group has a stake in, saw improvements in its core automotive distribution business and its palm oil business. Its heavy equipment distribution business is also poised to improve with recovering commodity prices.

Retailer Dairy Farm also recorded higher revenues and profits.

Underlying profits at property arm Hongkong Land, too, did not slide much with limited leasing competition in the commercial rental market.

Other interesting tidbits can be picked out. For example, car sales appear to be booming in China and Vietnam, benefiting subsidiaries Jardine Motors and Jardine Cycle & Carriage.

Not all segments are performing well. The Mandarin Oriental hotel business has been weak notably in Hong Kong, London and Paris. Astra's retail bank, Permata, suffered from loan provisions. Pizza Hut isn't doing well in Hong Kong.

But overall, the Jardine empire looks likely to benefit from growth in this part of the world.

The only problem now is that after a huge rally this year, its stock isn't regarded by brokers as cheap. JP Morgan just downgraded the stock to "neutral" with a target price of US$61. UBS has a "sell" call with a target price of US$60.50. Macquarie and Nomura, meanwhile, are "neutral".

Nevertheless, for those working within it, the Jardines possess an air of permanence and a long-term outlook that few firms can be said to possess.

As the employee whom BT spoke to said: "You get the sense that (the Keswicks) are really building the overall business for their future generations. The group has divested certain businesses over the years but generally the main pillars of the group like property and retail are probably here to stay so long as they remain relevant."

Sprawling empire

Shop in Singapore's Ion Orchard, and one might notice elevators and escalators installed and maintained by Schindler.

Schindler, a Swiss firm, formed a joint venture with Jardine Matheson in 1974 to market and service its lifts and escalators in the region. The joint venture is 50 per cent-owned by Jardine Pacific, a Jardine Matheson subsidiary which holds stakes in a number of the conglomerate's businesses that are not separately listed, such as construction (Gammon), airport and transport services (Hong Kong Air Cargo Terminals, Jardine Aviation Services Group), restaurants and IT.

In Singapore, a quick tour of the Marina Bay area will also turn up Jardine-related businesses. If you work there, you might pass by One Raffles Link, the two towers of One Raffles Quay, and the three towers of Marina Bay Financial Centre. These are all buildings which Jardine subsidiary Hongkong Land has a stake in and gets rental income from.

If work is not your thing, the nearby Jardine-owned Mandarin Oriental hotel offers a high-end retreat. In the suburbs, while you might not buy Jardine subsidiary MCL Land's condos such as LakeVille and J Gateway, you might shop at household names 7-Eleven, Cold Storage, Giant and Guardian all dotting the landscape - and belonging to Jardine subsidiary Dairy Farm.

Perhaps Singapore is too small, a little red dot. In nearby Indonesia, Jardine Cycle & Carriage subsidiary Astra International is one of the biggest companies there. Astra makes and distributes popular vehicle models such as the Toyota Avanza car or the Honda motorcycle, and provides the necessary vehicle financing.

It also has a stake in retail bank Permata Bank, sells general and life insurance, distributes mining equipment, sells tonnes of crude palm oil, and also helps develop Indonesia's infrastructure.

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If you prefer dim sum over rendang, you'll find enough to suit your fancy at Maxim's, a Hong Kong restaurant chain that Dairy Farm has a stake in. If you want fast food, the Jardine Restaurant Group is Pizza Hut's largest international franchisee with a presence in Taiwan, Hong Kong, Macau and Vietnam. It operates KFC outlets in those territories too.

The Jardine group is one of Hong Kong's biggest employers and its largest landlord in the Central area. Hongkong Land owns office buildings such as the Exchange Square towers, Jardine House and other British-named buildings - Alexandra House, Chater House, Gloucester Tower and Prince's Building. Jardine Matheson even runs a quaint tourist attraction by Causeway Bay: The Noonday Gun.

In the early days of Hong Kong, the Jardine group maintained a detachment of guards and a battery of guns near their headquarters, warehouses and tea clippers. The guards used to fire the guns to send off company bigshots or welcome them back into town.

One day, the ship of a Jardine bigshot sailed past that of a senior British navy officer, and the gun went off as usual. The officer was apparently so annoyed by the private salute that the company was ordered to fire the gun once at noon every day as a time signal. The tradition has stuck since, up till this day.

This article was first published on Apr 08, 2017.
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