While these commitments reflect “stronger capital discipline and shareholder alignment”, the stock continues to trade at a holding company discount of 27%, in line with historical averages.
This sugggests investors have “yet to fully recognise the group's transformation amid concerns over earnings visibility, future M&A (mergers and acquisitions) direction and limited near-term catalysts post-Investor Day”.
Jardine Matheson’s targets aside, Pang and Mittal believe divestments - not mergers - could be the group’s next rerating catalyst.
“We believe the market is overlooking management's US$4 billion capital recycling target (excluding Hongkong Land/Astra), despite parent-level divestments historically driving holding company discount narrowing,” they write.
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“Our analysis identified US$5 billion of disposal opportunities, suggesting that the US$4 billion target is achievable,” they add. “Management plans to allocate 50% of recycling proceeds to selective M&A, 25% to dividends and 25% to share buybacks, reinforcing its disciplined capital allocation framework.”
For the next 12 months, Pang and Mittal have a target price of US$90 ($116.31), which represents an upside of 45% to Jardine Matheson’s last-closed price of US$62.05 as at July 13.
The analysts’ estimate is based on a sum-of-the-parts (SOTP) formula, as well as a holdco discount of 25%. There is scope for the discount to narrow as execution improves, note the analysts.
Given that the stock is trading at a forward P/E ratio of 10.2 times or -0.5 standard deviations (s.d.) below its historical average, its current share price represents an “attractive entry point” ahead of anticipated divestment activity and improving sentiment at Astra. Astra, in June, announced that it will conduct share buybacks of up to IDR8 trillion ($571.9 million). The company will also benefit from potential coal production quota hikes, as announced by the Indonesian government, also in June.
