Jardine Matheson Is Still Probably The Best Way To Invest In Asia

| About: Jardine Matheson (JMHLY)

Summary

Jardine is a conglomerate with holdings all over Asia and the world.

The stock sells at a discount to NAV of around 20%.

There is probably more room for the stock to fall before it is a buy.

Last year I wrote on my favorite Asian conglomerate: Jardine Matheson (OTCPK:JMHLY). Since my story from February 2015, the stock is down--but not by a lot. If Asian markets continue to "correct", Jardine is a fantastic way to invest in a blue chip that has been around for hundreds of years. The shares are down 23% from last year's article.

To begin, I will rehash some of what I discussed in my previous article which can be found here. Jardine was founded in Hong Kong by Scottish immigrants close to 200 years ago. The Keswick family, heirs of William Jardine, still control the enterprise. Like Hong Kong, Jardine has experienced many changes. Founded during the time of the Opium Wars, the island is now under Chinese control. I once walked into their headquarters in Hong Kong and saw a plaque commemorating all of the employees who died serving in WWI and WWII.

The James Clavell novels do a great job in giving an overview of the company, though it is fictional and uses different names and characters. Taipan is based upon Britain's seizing Hong Kong from China. Noble House, which is what Clavell calls Jardine Matheson, is based upon Jardine in the 1960s. Both give an historic account of Hong Kong.

Jardine is a combination of two publicly traded companies: Jardine Matheson and Jardine Strategic (OTCPK:OTCPK:JDSHF). The two companies own shares in one another. This setup was to thwart a hostile takeover in the 1980s. Because the two companies own shares in one another, one must subtract the cross holdings from market capitalization. So looking at the Financial Times, Jardine Matheson has 702.36 million shares and a market cap of $35.86 billion. However, because Jardine Strategic owns 56% of Matheson and Matheson holds 83% of Strategic, Matheson only has a market cap 370 million shares and a market cap of $20 billion. An excellent article on Seeking Alpha articulates the cross holdings with graphs and charts.

Jardine owns shares in five publicly traded companies: Hong Kong Land with a 50% interest worth (OTCPK:OTCPK:HNGKY) $7.635 billion, Dairy Farm with a 78% interest worth (OTCPK:OTCPK:DFILF) $6.5 billion, Mandarin Oriental Hotels with a 74% interest worth (OTCPK:OTCPK:MNOIY) $1.31 billion, Jardine Cycle & Carriage with a 74% interest worth (OTCPK:OTCPK:JCYGY) $6.82 billion, and Jardine Lloyd Thompson with a 42% share worth (OTC:OTC:LLTHF) $1.2 billion. Two wholly-owned divisions, Pacific and Jardine Motors, are probably worth $2 billion or so. This totals $25.465.

Last year's dividend was $1.45, so the stock yields 2.84%. 48% of profits are derived in China, 45% Southeast Asia, 5% U.K., and 2% in the rest of the world. The underlying companies are also doing something to grow. Last year: Cycle & Carriage bought a share of Siam City Cement, Hong Kong Land is building more buildings that I can mention, Dairy Farm bought a 20% interest in Yonghui, San Miu Supermarkets were acquired in Macau, and the Mandarin Oriental bought the Hotel Ritz in Madrid in a joint venture for $148 million. It was recently announced that Mandarin Oriental is buying the building that houses its hotel in Boston for $140 million.

Getting to know Jardine is like getting to know Berkshire Hathaway--there are just too many divisions to discuss in one article. Having said that, I'll give you an idea: hotels, sky scrapers, apartment buildings, insurance, 7-11 franchises, car dealerships, convenience stores, palm oil plantations, coal mines, engineering firms, construction firms, airports, elevators, Pizza Hut and KFC franchises, motorcycles, and on and on. Read their quarterly magazine Thistles.

This is a link to an excellent article in the Economist. It discusses Jardine's history, culture, and its many holdings. The article makes a good point about concerns in the Indonesian economy. It also points to why the company decided to move its listing to Singapore. Another moves by the Keswicks to keep control of shares.

I would buy Jardine but at the right price. We owned shares but sold back in 2008. I wish we'd held on as we would have seen our shares climb 160%. We'll probably get another chance as Asia goes through booms and busts. Jardine is an excellent way to buy into Asia and know that management is probably not doing anything funny. The shares almost always sell at a discount to NAV by 20%. The shares have not gotten hit in the recent selloff. Still, I think it's too early to buy.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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