• JARDINE MATHESON (SGX:J36) offers exposure to the growing economies of ASEAN and Greater China.
• In our view, 2H19F outlook for Jardine Matheson could be challenging due to the uncertainty in Hong Kong (HK) and poor consumer sentiment in the Asian region.
• Maintain ADD, with a lower Target Price of US$61.66 to reflect the Target Price cut of subsidiary Dairy Farm International, and the lower share prices of Jardine Matheson’s investments.

Diversified Conglomerate

• JARDINE MATHESON (SGX:J36) is an investment holding company with a diversified portfolio of assets.
• Its key operating subsidiaries are HONGKONG LAND (SGX:H78), DAIRY FARM INTERNATIONAL (SGX:D01), and JARDINE CYCLE & CARRIAGE (SGX:C07).

Hongkong Land (SGX:H78, Rating: ADD, Target Price: US$6.90)

• HONGKONG LAND (SGX:H78) saw positive rent reversions in 3Q19 and occupancy levels remained high in its office portfolios in Hong Kong and Singapore.
• Hongkong Land's property development activities in mainland China saw higher contracted sales in 3Q19 vs. compared with the same period last year, due to a greater number of sales launches and changes in product mix. Market sentiment remained stable.

Dairy Farm International (SGX:D01, Rating: REDUCE, Target Price: US$5.40)

• DAIRY FARM INTERNATIONAL (SGX:D01) in its 3Q19 interim statement highlighted that the softness faced by its HK businesses (especially Manning and Maxim's) more than offset any benefits from its ongoing transformation programmes.
• We think the HK retail market may remain weak for the next 1-2 years.
• While protests could fade in early or mid 2020F, the negative repercussions on HK retail could persist. On 28 Nov, we lowered our forecasts for Dairy Farm International and our Target Price for the stock.
• Dairy Farm International - Not Time To Jump In Yet.

Jardine Cycle & Carriage (SGX:C07, Unrated)

• We expect Astra to continue to be affected by relatively weak domestic consumption and low commodity prices for the remainder of the year, while benefiting from an improved contribution from its financial services and gold mine operations.

Maintain ADD

• We value Jardine Matheson at 0.78x P/BV (0.5 s.d. below its historical 20-year average P/BV).
• We trim our FY19-21F EPS by 0.5-1.8% to reflect changes to our forecasts for Dairy Farm International. Our Target Price declined to US$61.66 to reflect the Dairy Farm International's recent Target Price reduction and the latest share prices of Jardine Matheson’s investments.
• Potential re-rating catalysts for the stock are return to normalcy in HK.
• Downside risks to our call are deterioration of the situation in HK.

Source: CGS-CIMB Research - 9 Dec 2019