Jardine Strategics Holdings

[ghchua]

I hope you understand what I am talking about especially on looking at cash at which level portion instead of consolidated cash for a holding co. with many listed subsi.

Yes. I am following you here. You are looking at note 40 of the accounts of JSH 2019 annual report, which presents their corporate level cash flow and not the consolidated cash flow statement of the group.

The US$2,551 million net assets number I got was from their 1H2020 result announcement under JSH corporate. Page 36. For year end number, let's wait for their FY2020 result announcement to get an updated one. I believe we are looking at the same thing.

For year end dividends, I think we should exclude the final dividend from JMH, since JSH's stake in JMH will be cancelled post amalgamation. That should amounts to around US$500m?

So, back to my point on why JSH is accumulating cash at corporate level. It might be in preparation for some near term usage like rights issue for subsidiaries. Though JMH will have direct access to those cash after amalgamation of JSH, it could be reserved for near term usage.

[donmihaihai]

The current cash holding at JSH level should be enough for Jardine C & C and even MOIL. Jardine C & C need about USD1 to 2B, depend on how strong Jardine C & C B/S to be, JSH will supply 75% of the total.

From JSH AR, JMH dividend seldom flow to JSH because JSH take scrip. Ditto to JSH to JMH. Which mean JMH use money from unlisted subsidiaries to pay dividends to shareholder who take cash and listed subsidiaries cash seldom flow from JSH to JMH. So JSH corporate cashflow basically show Jardine capital allocation at the highest level. Going forward, these information are most likely not going to be available anymore. Getting them is not that hard by oneself but need more work.

[ghchua]

From JSH AR, JMH dividend seldom flow to JSH because JSH take scrip. Ditto to JSH to JMH. Which mean JMH use money from unlisted subsidiaries to pay dividends to shareholder who take cash and listed subsidiaries cash seldom flow from JSH to JMH. So JSH corporate cashflow basically show Jardine capital allocation at the highest level. Going forward, these information are most likely not going to be available anymore. Getting them is not that hard by oneself but need more work.

If you noticed in 2019, there has been no cash outflow for scrip in JSH corporate cash flow numbers. Which means JSH didn't take JMH scrip dividend and instead opt for cash dividend in 2019? That sounds strange to me, since you said JSH takes JMH scrip.

Therefore, it seems to me like a deliberate move from JSH corporate to accumulate more cash since 2019. They have planned to amalgamate JSH into JMH since 2019?

[donmihaihai]

I don't know.

But isn't it better for the cash at JMH instead of JSH(buyer needs the cash than seller)? Unless JMH has more cash( decent disposal) and JSH needs more at standby( Jardine C & C).

Personally I think the acquisition of JSH and share buyback is more of valuation after years of investors getting disappointed with Jardine group share prices.

[ghchua]

Personally I think the acquisition of JSH and share buyback is more of valuation after years of investors getting disappointed with Jardine group share prices.

Though this acquisition has some short term positive impact on the group's companies share price, ultimately, their business must perform for decent long term share price performance.

I think looking back, the performance of the share price of these group of companies had been decent. It is only during these last few years that they have underperformed, as each of their business has their own challenges. Value and cyclical stocks had also suffered during these last few years, as investors switched their attention to new economy stocks.

Hopefully, the tide will turn soon and we can see better performance going forward for Jardine group of companies.

[ghchua]

An interesting saga is now going on after JSH reported its full year result today. Since JSH minorities cannot win by vote, they are considering to apply to Bermuda court to assess JSH's fair value. If the assessment is of higher value, the court could ask JMH to pay more. If not, JMH can walk away from this deal.

Jardine minority shareholders oppose US$1 bil 'discount' in buyout plan
https://www.theedgesingapore.com/news/co...uyout-plan

[ongweehiang]

Did some number crunching and guesstimate of the intrinsic value of JMH. It should still be pretty undervalued (but higher debt) after this exercise.

If we expect the debt to be manageable on a group level and subsidiaries will be giving cash back to parent company to lower debt quickly, and coupled with decent dividend going forward, would JMH may still be a buy at this level?

Wonder if market is undervaluing this whole strategic exercise.

This level = US$60.50 - 65.80 ?
What is your guesstimate value of JMH ?

Guesstimate value is around USD 90. With a 30% conglomerate discount, it should trade around USD63. 

If the unlock is successful, the conglomerate discount may shrink? 
If not, it should stay around this level USD 63 - 65 level? 

Interested as the narrative could shift drastically if JMH tries to unlock value on the listed subsidiary level. 

Also like the CEO change coinciding with the deal which may signify things/thoughts are changing. 

But as what some @ghchua had mentioned, it may not happen at all. 

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[ghchua]

If the unlock is successful, the conglomerate discount may shrink? 
If not, it should stay around this level USD 63 - 65 level? 

Hi ongweehiang,

I view it differently from you. Conglomerate discount will always be present at most holding companies, including JMH. What JMH suffers currently in this structure is not only conglomerate discount, but another layer of discount due to its cross holding structure with JSH.

So, if this amalgamation deal goes through, the conglomerate discount will still be there as I don't expect JMH to trade above its full equity value in its balance sheet. But it will be net net positive for JMH as the cross holdings structure will be eliminated.

[donmihaihai]

Well.. JMH was trading above book few years back. so conglomerate and cross holding premium?

[donmihaihai]

https://www.ft.com/content/d617d57e-a7db...6f19b05c7b