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Diversification not working for Jardine Matheson
JARDINE Matheson Holdings Ltd, a 187-year-old conglomerate with more than US$42 billion in sales, has been among Singapore's steadiest stocks for years. Not so in 2019.
Bad luck first struck in January, when a flash-crash triggered by haphazard sell orders erased more than three-quarters of its value. That was a momentary blip, but the firm also faces more enduring problems.
It now has the dubious distinction of owning two of this year's biggest losers in a stock index where more than two-thirds of the shares are up. The companies, Dairy Farm International Holdings Ltd and Jardine Cycle & Carriage Ltd, do not have much in common besides their ownership - which would usually provide some protection against downswings, but not this year.
"Normally if you're a holding company, you go into very diverse businesses and expect one to do well while another does worse," said Nicolas Van Broekhoven, a Singapore-based analyst at researcher Smartkarma, who has been following the Jardine companies for more than a decade. "Diversification isn't working."
Dairy Farm International is the Straits Times Index's biggest decliner this year, falling 15 per cent. The Jardine-owned operator of convenience stores, drug stores and supermarkets in February reported that 2018 profit dropped by 77 per cent due to weakness in the food businesses and restructuring charges.
"Dairy Farm has been having operational issues," said Alfie Yeo, a Singapore-based analyst at DBS Bank Ltd.
Cycle & Carriage - which has its own far-flung portfolio of South-east Asian business spanning car dealerships, palm oil processing and real estate - is down 6 per cent since the start of January. Profit fell by more than half last year, and the company's main car market - Indonesia - may grow more slowly in 2019, it said in February.
Another Jardine-owned sprawler is Jardine Strategic Holdings Ltd, also down this year about 3 per cent. The firm owns stakes in Dairy Farm and Cycle & Carriage, along with shares of the parent, Jardine Matheson, which itself has dropped almost 11 per cent.
The Jardine Matheson group was founded in 1832 in Canton as a tea and opium trader. It eventually became one of the hongs, or trading houses, that shaped Hong Kong's development. After moving its stock listing to Singapore in 1990, the group shifted focus towards South-east Asia, where it now runs Pizza Hut restaurants, hotels and Mercedes-Benz dealerships.
"You can't really link one business to the other because they're all very diverse," said Smartkarma's Mr Van Broekhoven. "It is notable that all have lagged at the same time." BLOOMBERG