Description

Jardine is one of the oldest conglomerate groups in Asia. It has been in existence for 177 years and is very conservatively run. The company was founded by Mr Jardine and Mr Matheson, who were involved in the creation of the current Hong Kong. Both man had Scottish roots. Many generations later the company is still led by the descendants of Mr Jardine & Mr Matheson. The current family members go by the name Keswick and Weatherall.

Currently there are two big holding companies that are controlled by the family. Jardine Matheson and Jardine Strategic. Jardine Matheson controls 81% of Jardine Strategic and Jardine Strategic controls 53% of Jardine Matheson. Both are holding companies and are listed in Singapore (but quoted in USD).

One particular characteristic of the companies that are managed by Jardine is that they all have net cash or little debt. Currently I favour Jardine Strategic as the discount to NAV is widest here.

Jardine Strategic has stakes in following publicly listed companies:

50% of Hong Kong Land (listed)

78% of Dairy Farm (listed)

69% of Jardine Cycle & Carriage (listed) JCC

74% of Mandarin Oriental (listed)

21% of Rotschild Continuation (non-listed)

Hong Kong Land is one of the oldest and most prominent real estate investors in Hong Kong. It controls the central business district of Hong Kong. Currently it is expanding its portfolio of real estate investments in South East Asia.

Dairy Farm is a very well run retailer (close to 6% net profit margins, comparable to Wal Mart or Tesco). It is spread out all over Asia and has 4847 stores currently.

Jardine Cycle & Carriage is the holding company that controls Astra Int'l. Astra is the largest conglomerate of Indonesia which is active in distribution of cars, palmoil, financial services and mining equipment.

Mandarin Oriental is luxury hotel group that owns or manages 25 hotels around the world.

Rotschild Continuation is the holding company of the family Rotschild.

Looking at the net profit contribution 27% comes from Dairy Farm, 19% from Hong Kong Land, 6% from Mandarin Oriental, 35% from JCC (32% from Astra), 12% Jardine Matheson contributions (Jardine Motors, Jardine Pacific).

Overall you are investing in 37% pan asian retail, 30% property, 21% Indonesian commodity, 12% other businesses. Over the last ten years the underlying business have grown their EPS by a CAGR of 18%. Over the last 15 years the companies book value has grown by 15%+ per year.

In order to calculate the NAV we take the stock market listed entities. As of last Friday you achieved an NAV of about 33 USD per share. Jardine Strategic closed at 17,34 USD per share last Friday. Hence, the discount to NAV is between 45-50%. Sooner or later this discount will close. Perhaps not to 0% but to a more reasonable 15-20% discount to NAV. The only asset which there is a strong argument to be made that it is overvalued is Dairy Farm at 20x 2010 earnings. However with a ROE of 60% and high visibility we understand why the market gives it a high valuation.

Recently there has been more coverage of Jardine thanks to coverage of CLSA and HSBC. Earlier this year Cazenove also wrote a large research report.

We believe the true value of Jardine Strategic is underappreciated by the market and if one believes that the 21^st century will be dominated by Asia Jardine Strategic is an ideal way to play the region via a holding company with a very good track record of value creation. All companies have minimal leverage and are conservatively run.

Catalyst

no catalyst, just conservative management and long term value creation