Jardine Matheson - Sell: Expensive Dairy, Empty Rooms and Full Garages

2H Outlook: Grim — Jardine Matheson reported a set of in-line results, with 1H09 core profit at US$389m, down 13% YoY. Mgmt slightly raised its interim DPS by 1 US cent to US$0.25. With mgmt expecting the 2H for most businesses to remain difficult, we maintain our Sell (3H) rating.

We raise our TP 20% to US$24.40 reflecting latest market value of the group’s subsidiaries.
Initiate Coverage on Dairy Farm at Sell (3L) — Our negative view on Dairy Farm is predicated on the basis that from a macro (low regional CPI and retail sales) as well as a micro perspective (lower asset turnover and more competition), the company is now facing a period of subdued growth, and yet the stock is trading close to its all-time high (at 27 x PER).

Mandarin Oriental Hit Hard by Economic Downturn — In light of the dismal level of both business and leisure travel, Mandarin Oriental barely broke even with US$1m core profit, and it experienced a 34% fall in RevPAR during the period. Management believes that it is “too early to declare any green shoots” as July/August so far remain to be a weak period.
Hongkong Land — We recently raised our TP on HKL, which was consolidated into JM’s B/S for the first time, to US$4.70 to account for yield compression.

Other Businesses — HACTL saw its throughput drop 21%, accounting for most of the decline in Jardine Pacific’s contribution. New car markets for Jardine Motors in HK and UK remained weak and the division does not see the end of the tunnel at the current stage.

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