The analysts attribute the decline to lower contribution from Zhongsheng, which was impacted by intense market competition from domestically produced electric vehicle penetration in China, headwinds from lower commodity prices at Astra which saw profit drop 6% y-o-y, as well as from other businesses amid challenging conditions.
“It was partially offset by the recovery in DFI retail (+127% y-o-y),” writes Choi and Cheung.
They add that the period’s declared interim dividend per share (DPS) of 60 US cents was flat y-o-y, as was gearing at 15% as compared to end-FY2023.
According to Choi and Cheung, Jardine notes that the likelihood of further impairment charges on Hongkong Land in 2HFY2024 is low, as the team is “satisfied” with the estimated profit margins of its other property projects.
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They write: “Management reminds us that, even during the pandemic years, Jardine Matheson’s dividends continued to increase in-line with earnings, thanks to its diversified business portfolio and solid balance sheet.”
“Management sees Zhongsheng as a core business for the group despite the continuing challenging market conditions against Chinese car dealerships,” add the analysts.
Jardine’s capital allocation policy of prioritising organic investment in the portfolio and progressively growing dividends over inorganic merger and acquisitions (M&As) will remain unchanged.
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The group has also increased its shareholdings in Mandarin Oriental and Jardine Cycle and Carriage at end-December 2020 and in June, from 80.2% to 85.3% and 28.1% to 83.1% respectively.
Overall, Choi and Cheung like Jardine’s long-term sustainable operating cash flows and its strong balance sheet. They conclude: “We believe the non-cash impairments taken this year will not impact Jardine’s stable dividends, which is another positive.”
At Jardine Matheson’s share price of US$34.45 as at the analysts’ report on Aug 2, the stock is trading at a 35% discount to its net asset value (NAV), which is equivalent to a 1 standard deviation (s.d.) discount to its historical mean. As such, Choi and Cheung believe the negatives have already been priced in.
As at 2.34 pm, shares in Jardine Matheson are trading 79 US cents higher or 2.28% up at US$35.44.
