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CGS-CIMB downgrades Jardine Matheson to 'hold'

Brokerage believes shares have already priced in short-term recovery expectations


JARDINE Matheson Holdings (JMH) has been downgraded to "hold" by CGS-CIMB in a research note on Tuesday, as it believes the shares have already priced in short-term recovery expectations.

Shares of JMH closed at US$54.06 on Wednesday, down US$0.46 or 0.84 per cent from the previous close. However, the stock has gained around 36.2 per cent during this quarter, up from the US$39.68 close on Sept 30.

"We believe JMH's share price has priced in short-term recovery expectations," CGS-CIMB analyst, William Tng, wrote. "Recovery is likely to be a slow and long process, hence, we downgrade JMH to a 'hold'."

While the rating has been downgraded, the brokerage has increased its target price (TP) for JMH to US$54.68 based on a 0.85 price-to-book value ratio (P/BV), in line with the historical average for the 2000 to 2019 financial years.

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CGS-CIMB's previous TP for JMH was US$48.61 based on a 0.78 P/BV. It believes that most of the bad news has been priced in, and JMH could rerate back to its historical average P/BV.

The brokerage noted that there was sequential improvement in business, with JMH guiding that there was some improvement in performance across many of the group's businesses in the third quarter, compared to the second quarter of 2020.

However, the group has also guided that performance is expected to remain weak in the fourth quarter, significantly influenced by the impact of Covid-19 and the reduction of government support, the analyst wrote. He added that the key earnings contributors for JMH are Hongkong Land, Dairy Farm International and Jardine Cycle & Carriage.

For Hongkong Land, CGS-CIMB said that the Hong Kong Central office portfolio continued to register positive rental reversion in the first half of 2020, despite rising vacancy. It also noted that the valuation remained attractive, at 60 per cent discount to net asset value. It has an "add" rating on Hongkong Land, with a TP of US$5.10.

On Dairy Farm, the brokerage also had an "add" rating, with TP of US$4.50. It noted that while medium-term prospects are uncertain, sentiment for the stock is likely to improve once recovery plays are revisited.

CGS-CIMB noted that performance for Jardine Cycle & Carriage continued to be affected by challenging trading conditions, caused by weak business and consumer sentiment, although there was some improvement in a number of its businesses quarter on quarter. It does not have a rating on Jardine Cycle & Carriage.

The analyst said the key upside and downside risks for JMH remain Covid-19's impact on economic conditions in Greater China and South-east Asia, as well as US-China tensions.

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