DBS says parent Jardine Matheson a better buy, as it downgrades JMSEA

[SINGAPORE] DBS Group Research has picked Jardine Matheson Holdings (JMH) over its subsidiary Jardine Matheson Southeast Asia (JMSEA) , citing the parent’s broader exposure to the group’s restructuring efforts and greater potential for a valuation rerating.

In reports dated Oct 19 and 20, analyst Elizabelle Pang maintained a “buy” on JMH with a lower target price of US$85, down from US$90, while downgrading JMSEA to “hold” from “buy” and cutting its target price to S$25 from S$35.50.

The differing recommendations of the mainboard-listed companies reflect the brokerage’s view that much of the near-term value-unlocking potential for JMSEA has already been priced in, while JMH continues to trade at a substantial discount to the value of its underlying assets.

JMSEA was formerly known as Jardine Cycle & Carriage, but changed its name recently to reflect its strategic role for the wider Jardine Matheson Group across South-east Asia.

JMH’s market-implied holding company discount has widened to about 37 per cent, above its long-term average of 32 per cent, despite the group setting targets for shareholder returns, capital recycling and new growth opportunities through 2030.

The brokerage believes the discount could narrow to 25 per cent as the group delivers on its restructuring plans. These plans include at least US$4 billion in capital recycling by 2030, its ongoing US$500 million share buyback programme and an earnings recovery at Indonesian subsidiary Astra International.

“We believe investors have welcomed JMH’s strategic reset but await tangible execution – particularly an earnings recovery at Astra, earnings accretion from I-MED, progress on disposals and evidence that recycled capital can generate attractive returns,” Pang added.

JMH acquired I-MED Radiology Network earlier this year for A$3.4 billion (US$2.4 billion). It is an Australia-based diagnostic imaging and teleradiology company.

She also identified further corporate simplification, greater transparency on net asset value (NAV) and stronger operating performance as priorities for a sustained rerating of JMH.

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DBS pointed to Berkshire Hathaway and Sweden’s Investor AB as examples of investment holding companies that have overcome traditional conglomerate discounts. Both have demonstrated their ability to create value through disciplined capital allocation.

JMSEA’s portfolio

JMSEA’s portfolio simplification is largely complete following the announced disposal of its Cycle & Carriage automotive distributorship businesses and the distribution of its remaining Toyota shares to shareholders.

DBS said the subsidiary now trades at about a 20 per cent premium to its pro forma NAV, limiting further upside.

Its exposure to Astra also increased, with the Indonesian conglomerate accounting for more than 85 per cent of JMSEA’s gross asset value. This leaves the company more vulnerable to Indonesia’s macroeconomic conditions and currency weakness.

DBS widened its assumed holding company discount for JMSEA to 20 per cent from 5 per cent and lowered its underlying earnings forecasts for FY2026 and FY2027 by 5 per cent and 10 per cent, respectively.

The brokerage identified transport company Tunas Ridean – valued at an estimated US$100 million to US$140 million – as a remaining potential disposal candidate.

It also noted that JMH’s purchases of additional JMSEA shares in May and September raised the possibility of further ownership consolidation, although the timing and likelihood of such a transaction remain uncertain.

Astra’s investor day on Nov 16 could be a catalyst for both stocks, with greater clarity on its strategy, medium-term targets and potential share buybacks providing scope for a rerating.

Shares of JMH closed 3 per cent or US$1.67 higher at US$57.41 and shares of JMSEA closed 1.7 per cent or S$0.39 lower at S$23.20 on Tuesday.