• Jardine Matheson's FY19 underlying net profit formed 97% of our forecast, within expectations.
• The group expects the short-term outlook to be challenging given the Covid-19 outbreak.
• We downgrade our rating from Add to HOLD.

FY19 in Line With Expectations

• Jardine Matheson (SGX:J36)'s FY19 underlying net profit of US$1.5bn was in line with our expectations, at 97% of our forecast. A final DPS of US$1.28 was declared.
• In FY19, Jardine Matheson’s balance sheet was strengthened by a cash inflow of US$2.1bn arising from the sale of its stake in Jardine Lloyd Thompson.

PT Astra International (29% of FY19 Underlying Net Profit)

• Key drivers behind Astra’s performance were
  1. lower car sales and higher operating costs;
  2. reduction in non-performing loans; and
  3. contribution from a new gold mining operation.

Dairy Farm Int’l Hldgs (29% of FY19 Underlying Net Profit)

• Dairy Farm (SGX:D01)’s FY19 revenue fell 5% y-o-y while its underlying net profit fell 10% y-o-y due to the impact of the social unrest in Hong Kong, whose impact was felt most by its Mannings unit.

Hongkong Land Hldgs (13% of FY19 Underlying Net Profit)

• Hongkong Land (SGX:H78) did well with underlying profit growth of 4% y-o-y. The group’s investment properties business maintained stable profits while the development properties business benefitted from higher contribution from the Chinese mainland property market. Hongkong Land expects its net debt to rise in FY20F as payments are made for committed land purchases.

FY20F Outlook

• Jardine Matheson (SGX:J36) expects the short-term outlook to be challenging and its performance in FY20F will depend on the duration, geographic extent and impact of the Covid-19 outbreak and the measures taken to control the outbreak. The group is optimistic about the prospects for a speedy recovery once the situation stabilises.

Downgrade From Add to Hold

• Our earnings cuts reflect the downward revisions for its operating subsidiaries given the current uncertainties from the Covid-19 outbreak.
• Our Target Price falls to US$52.53 (still based on 0.78x FY20F P/BV which is 0.5 s.d. below its historical 20-year average P/BV).
• Key upside/downside risks are economic conditions in Greater China and Southeast Asia.

Source: CGS-CIMB Research - 9 Mar 2020