Jardine Matheson Holdings Limited (J36) Earnings Call Transcript

Welcome to the Jardine Matheson Half Year Results presentation. I am Suzanne Cheuk, Head of Treasury and Investor Relations. Joining us today are our CEO, Lincoln Pan; and CFO, Graham Baker, who will give an update on our strategic progress and financial performance in the first half of 2026. The presentation deck is now available on the Jardine corporate website. Just a reminder, all numbers are in U.S. dollars unless otherwise stated. We will address questions at the end of the presentation. You may start inputting your questions by scanning the QR code at the bottom of the screen. Thank you. I'll now pass it on to Lincoln.

Thank you, Suzanne, and good morning to everyone from here in Singapore. We've had an exciting first half of 2026, highlighted by our first ever Investor Day, our acquisition of I-MED, continued efforts on portfolio simplification, all in the efforts to drive total shareholder returns. At our Investor Day in June, we provided clarity on our strategic and financial objectives, and we set a clear mission: that Jardine will be an outstanding investor and owner dedicated to building diverse, high-quality scaled businesses in Asia Pacific offering stable and sustainable top quartile shareholder returns. This has been developed in full partnership with our principal shareholders, the Keswicks, and our Board of Directors. To remind our shareholders in June, we made a number of commitments, which we target to deliver by 2030. First, delivering at least 9% per annum 5-year total shareholder return; second, growing the Jardine Matheson dividend by at least 5% annually which we're well placed to do, at least in 2026, recycling at least $4 billion of capital from the portfolio, excluding additional capital recycling commitments made by Hongkong Land and Astra. And importantly, building at least $200 million earnings from new, high-quality growth pillars through acquisitions such as I-MED. In addition to these commitments, we also announced a new follow-on $500 million share buyback program for Jardine Matheson Holdings. Now we are already delivering against these objectives. Corporate simplification remains a priority. In January, we completed the privatization of Mandarin Oriental and Jardine Cycle & Carriage has announced simplification actions specifically the distribution in specie of shares in Toyota Motor Corporation, together with a special cash dividend or proceeds from our sale of TMC shares. The distribution in specie would enable JC&C to further simplify the portfolio, allowing us to focus on stewardship of Astra and our Vietnam assets. We are focused to further simplify the JC&C portfolio going forward. In the first half, Jardine Matheson and its portfolio companies recycled $1.5 billion in capital and reinvested or made commitments to invest $3.2 billion of capital. Excluding Astra and Hongkong Land, we've recycled just under $500 million in the first half of 2026, representing 12% of our 2030 target of $4 billion. We remain active in the second half to push toward realizing at least 20% of this target in 2026 and are planning ahead for more realizations in 2027. We have made further progress exiting noncontrol holdings. We've divested the majority of our holdings in Vinamilk and reduced our holdings in Toyota and Zhongsheng. Investors should expect us to continue to divest and recycle positions in line with our strategic direction, while we will continue to invest via buybacks, bolt-on acquisitions and new pillars of long-term growth. In May, we announced the acquisition of I-MED. And at the Investor Day in June, we detailed Jardine Engineering and Infrastructure's ambitious growth agenda. And we have made substantial progress restructuring Jardine Matheson as a lean and focused investment company. Jardine's head count has been reduced by around 47% since 2024, while building a high-caliber investment and portfolio support team with Irene Liu and Chris Ganis joining the team in the last several months. Additional senior hires will be announced before year-end. On I-MED, the $2.4 billion acquisition of I-MED represents a significant step for Jardine in a strategic evolution as a control owner of high-quality businesses in the APAC region with a long history of high-quality earnings growth I-MED will provide an additional source of positive momentum and diversification into the Jardine's portfolio. I-MED's performance for the fiscal year ending June 2026 is in line with our expectations and our transaction underwriting. We are working at this time to put in place an independent Board of Directors and to upgrade the CEO position. With the Jardine Matheson's balance sheet in a strong position, we continue to look for other new control investment opportunities and strengthening our existing platforms via bolt-on acquisitions, namely through I-MED, Jardine Engineering and Infrastructure and Mandarin Oriental. Where we see value in our existing portfolio, we have and will continue to support share buybacks and share purchases at the Jardine Matheson and the portfolio company levels. They have been substantial over the last 5 years with JMH investing $8.5 billion. In the first half of 2026, Jardine Matheson completed the $250 million share buyback program announced in November, which was immediately followed with a new $500 million share buyback program we announced at our Investor Day in June. At the half year, we also have open buyback programs across Hongkong Land, Astra and United Tractors. And just as a reminder, looking forward to 2030, you should expect our dividend to grow at least 5% per annum, which we will deliver in 2026, buybacks to continue where and when we see value and investments, approximately the same amount as dividends and buybacks combined in a small number of scale, control investments in high-quality businesses to drive earnings growth by and well beyond 2030. Sustainability remains an important enabler of long-term value across Jardine in our portfolio. Our ESG ratings have continued improvement. For one key rating, we moved from CCC to BBB over the last 5 years. In particular, on decarbonization, we want to approach decarbonization commitments in the same way we manage our financial budgets, meaning commitments to improve year-on-year performance. I will now hand over to Graham, who will take us through the first half financial performance.

Thanks, Lincoln. Jardine Matheson's portfolio delivered a positive performance in the first half of 2026. Jardine cash flows grew robustly and adjusted underlying net profit was up 9% to $735 million. This figure adjusts for prior year disposals and the impact of the change in Zhongsheng accounting. The proposed interim dividend is 8% higher at $0.65 per share. I'd note here that while we've upgraded our full year dividend guidance, to at least $2.47 per share, consistent with our guidance given at the Investor Day, the dividend growth of at least 5% per annum until 2030. However, you should assume that 8% growth in the interim dividend is also a rebalancing to increase the interim as a share of the full year payout. We'll look now more closely at underlying earnings. As mentioned, first half underlying net profit adjusted for disposals and the Zhongsheng reclassification increased by 9% to $735 million. The key components of this, as shown on the slide, were higher shareholdings in JC&C, MO and Hongkong Land, which drove 2% growth, 10% organic growth at constant FX across the portfolio. Within that, 4% reflected one-off lease remeasurement gains in Jardine Pacific's Motor business and a larger-than-normal FX headwind, principally from depreciation of the Indonesian rupiah. Overall, 5% underlying growth, excluding the effect of disposals, reclassifications and a nonrecurring lease gain is an encouraging performance and with ongoing economic challenges in our largest market. Looking in more detail at underlying net profit by business, Astra remained our largest contributor despite the challenges which were primarily felt as a slowdown in the Mining Solutions segment. Astra's Automotive, Consumer Finance businesses in Indonesia remained resilient, growing in the first half. Hongkong Land, Jardine Pacific and DFI also grew strongly once again demonstrating the value of our diversified portfolio. Corporate costs were lower as net financing costs in the prior year reversed to net financing income as proceeds from capital recycling moved the parent balance sheet to a net cash position at the beginning of the year. I'll cover the core portfolio companies in more detail in a moment. Outside underlying earnings, the group recorded a net nontrading loss of $196 million, 17% smaller than the loss recorded in the prior year. Following the change of accounting for Zhongsheng, the investment is now marked-to-market and Zhongsheng share price weakness was the largest contributor to the fair value loss recorded on other investments. Our interest in Zhongsheng dropped from 21% to 14% in the first half. Following Hongkong Land, we also recorded our share of the profits from build-to-sell through nontrading as they steadily wind down the business over a number of years. As usual, Hongkong Land also drove the largest part of the fair value adjustment on investment properties. We recorded an increase in the first half of 2026 as the Central market in Hong Kong continued its recovery bringing higher open market rents for office and marginally lower cap rates in the retail portfolio as the Tomorrow's CENTRAL renovations progress and luxury retail demand grew. On the group's balance sheet, net borrowings, excluding Astra's financial services companies, increased by $906 million, although gearing remained very modest at 7%. The increase was principally driven by payment of Mandarin Oriental special dividend following the completion of the sale of One Causeway Bay and at Astra, which completed acquisition of the ASA Gold Mine, and progress buyback programs at parent level and United Tractors. JC&C reduced its net debt using proceeds from the sale of shares in Vinamilk and half of its position in Toyota Motor Corp. And JM Parent further built its net cash position despite completing the privatization of Mandarin Oriental in the first half. Group cash flows from operating activities for the period were down $600 million primarily due to more challenging conditions in Astra's Mining Solutions business. Cash flows from investing activities recorded a net outflow of $392 million compared to an inflow of $416 million in the prior year. This principally reflected higher outflows for other capital expenditure which rose to $1.7 billion, as in addition to ongoing organic CapEx, Hongkong Land completed its investment in Suntec REIT, and Astra, its gold mine investment. The sale of associates and JVs mainly comprised the transfer of MBFC and One Raffles Quay to Hongkong Land's private REIT in Singapore. The sale of investment properties included a handover of 4 floors of One Exchange Square to the Hong Kong Stock Exchange and other disposals mainly reflected JC&C's sales of shares in Vinamilk and TMC and our own sale of shares in Zhongsheng. Cash outflows from financing activities were broadly in line with the prior year. The group has $12.7 billion in liquidity headroom to finance future growth. Overall, the group's portfolio companies continue to be highly cash generative, supported by strong balance sheets and access to considerable liquidity. Now turning to Jardine Matheson's corporate balance sheet and cash flows at the parent company level. Parent free cash flow rose strongly by 21% to $709 million in the first half, primarily reflecting strong performance by the portfolio companies in 2025 and newly enhanced recurring payout policies from some of them. Cash cover for the Jardine Matheson dividend remained very comfortable at 1.9x. The parent company's net cash position of $379 million at period end, comprised 10- and 15-year bonds totaling $1.2 billion issued in 2021 at an effective interest rate of 2.6% and $1.6 billion of corporate cash held at leading high-quality regional and global banks. We have, of course, committed to the acquisition of I-MED, which we expect to complete in the second half and are progressing our new follow-on $500 million buyback program. However, with further capital recycling ongoing, including JM's share of the special dividend announced yesterday by JC&C, we expect the corporate balance sheet to remain in a strong position at year-end. And with further substantial committed facilities, the group has ample flexibility for new capital deployments should they arise. I'll now go through the performance of our core portfolio companies for details do refer directly to our company's respective results briefings. Looking first at Astra. Unless otherwise stated, the numbers on this slide are shown in local currency. And like all the other portfolio company slides, are on a 100% basis. Net profit in local currency was 14.9 trillion rupiah, a 7% decline compared to the first half of 2025. This was primarily driven by a lower contribution from the Mining Solutions segment as some customers' coal quotas were restricted and the Martabe Gold Mine was out of production. Importantly though, an evidence of the resilience of the Indonesian economy, earnings were up in the automotive, financial services and other segments. Astra's contribution to Jardine's underlying net profit, excluding nontrading items, fell by 8%. The effects of the weak rupiah were partly offset by an increase in Jardine's effective shareholding. Astra's 5-year TSR was at 6.6% per annum despite challenging macroeconomic and investor sentiment. As Lincoln mentioned, Astra and United Tractors both have active share buyback programs aligned to their new shareholder return led strategy. The operating environment in Indonesia may remain uncertain in the short term, although we are encouraged that the Martabe Gold Mine has returned to operation. However, we remain confident in Indonesia and Astra's long-term fundamentals and are committed to both. Hongkong Land continues to see strong 5-year TSR as it makes meaningful progress against its Vision 2035 strategy. Capital recycled by Hongkong Land rose a further $100 million to $3.7 billion, 93% of their announced target for delivery by 2027. Net debt has fallen a further 5% to $3.4 billion, providing capacity to fund future investments and growth. Underlying net profit was 11% higher at $259 million, benefiting from lower net financing costs. Underlying earnings per share rose 14% as their buybacks progress. The interim dividend, which Jardines will receive increased by 33% to $94 million, reflecting a rebalancing of Hongkong Land's annual dividend payout towards the interim as well as upgraded earnings guidance for the year. Total equity increased by 2% to $31.4 billion, reflecting progress at West Bund and the upward valuation adjustments already mentioned in Central. DFI's contribution to Jardine's underlying net profit in the first half increased by 49% to $90 million, excluding the impact of disposals. Execution of its customer-first strategy saw positive sales and profit momentum across all banners in its key markets, which, together with lower financing costs drove continued strong growth. DFI have also revised their full year earnings guidance upwards to between $285 million and $305 million. 2025's strong growth as well as an increased dividend payout ratio saw Jardine's share of the interim dividend increased by 77% to $65 million. DFI finished the half year with minimal net debt, providing capacity to fund strategic priorities ahead. Mandarin Oriental reported lower underlying net profits due to a lower contribution from owned hotels with disposals in Miami and Munich impacting as well as closure of the Hong Kong property for renovation. The management business remains stable despite the impact of conflict in the Middle East. Expanding the management business, of course, remains the focus for future growth and another 5 new management contracts were announced in the first half 2026. As noted earlier, Mandarin paid a special dividend of $668 million to Jardine in January following the disposal of the top floors of One Causeway Bay. Part of this was used to fund the privatization. Jardine Pacific reported higher underlying net profit of $102 million, up $35 million or 51%. Of that, $24 million was attributable to lease remeasurement gains reported as part of others, which will not recur in the second half. The remainder came from recovery in the consumer businesses. Jardine Engineering and Infrastructure was marginally down in the first half of the year but is trading in line with expectations and typically sees the larger part of annual profits delivered in the second half of the year. As shared at the Investor Day in June, JEI has a target to double earnings by 2030. JC&C's contribution to underlying net profit, that is excluding the impact of the Vinamilk disposal, remained flat at $45 million. Improved contributions came from the Vietnam businesses and lower financing costs. Foreign exchange gains recognized in the prior year did not recur as the underlying loans were either repaid or redenominated in Singapore dollars. JC&C made further progress on portfolio action initiatives, specifically the sale of shares in their listed investments in Vinamilk and half their holding in Toyota. Following the TMC divestment, JC&C has proposed a special dividend of approximately $0.73 per share, comprising a cash distribution funded from the proceeds of the part sale and a distribution in specie of the remaining TMC shares. The distribution in specie enables shareholders to choose between holding Toyota shares directly or realizing the value in cash. Overall, corporate costs at Jardine's parent more than halved in the first half due to net financing income generated following the significant recent capital recycling activity. While within this overall reduction, net overheads grew, this was predominantly as a result of lower management fees charged to the portfolio companies. As the benefits of head office restructuring come through in the second half, we expect to see significant cost reductions net of building our new investment team and therefore, expect overheads for the full year to be broadly in line with 2025. Finally, looking ahead to the full year, our guidance given in March recognized that Jardine's 2026 underlying earnings will exclude a number of items that contributed meaningfully in 2025. Specifically, businesses disposed by DFI, primarily Singapore Food and Robinsons Retail, Vinamilk shares disposed by JC&C. And finally, the equity share of earnings from Zhongsheng, which, with our reclassification of Zhongsheng to be an investment rather than associates are no longer reported. After adjusting for these changes, our pro forma 2025 underlying EPS base for 2026 estimates was $5.33. We've seen encouraging first half results, even putting aside the nonrecurring lease gain in Jardine Pacific. These have led to guidance upgrades at DFI and Hongkong land. However, uncertainty remains over the short-term trajectory for earnings in Indonesia, our largest contributor. Accordingly, we believe it's prudent for now to hold our earnings guidance unchanged. For 2026, underlying earnings to be broadly in line with 2025 adjusted for business disposals. We will, of course, provide a further update once we've seen results in the third quarter with the IMS release in November. As outlined at the Investor Day, though, we can say already that Jardine's full year dividend will rise at least 5% to $2.47 per share. With that, I'll hand back to Lincoln. Thank you, Lincoln.

Thank you, Graham. To conclude, Jardine is already delivering against the strategic goals we set out at our Investor Day. Underlying earnings and parent free cash flow remain robust, and our strong execution of recycling initiatives across the portfolio positions Jardine well for further investment activity in the next 18 months. Our full year underlying net profit outlook remains unchanged at $5.33 despite turbulent conditions in our largest markets. We'll continue assessing the outlook over the course of Q3. And the resilient returns and cash generating capacity of our portfolio as well as the comfortable cash cover give us confidence to declare an interim Jardine Matheson dividend of $0.65 per share, up 8% and a full year dividend of at least $2.47, up 5%. Our focus as we enter the second half is to continue driving total shareholder returns improving cash flow across our portfolio, portfolio simplification, improving Astra performance and, importantly, integrating I-MED into our portfolio. While I'm pleased with the progress we've made in the first half of 2026, there remains much to do. Jardine must continue to evolve, build investment capability, upgrade talent, actively improve our portfolio and manage risk and return our portfolio. We will now take questions, and over to you, Suzanne.

Thank you, Lincoln. [Operator Instructions] The first question came from Jayden Vantarakis of Macquarie. He has 2 questions. The first is the cash buildup was positive in the first half of '26 and factoring in the I-MED purchase during the second half, does management have a view on where net cash or net debt would end up by the end of the year? The second question on Mandarin Oriental, following the privatization, the profit contribution declined. Is it purely a timing issue due to renovations or were there other underlying trends to call out?

Yes. Sure. I'll take the first one. So look, Jayden, obviously, we're in pretty good position for funding I-MED. That's very clear. But beyond that, obviously, the net cash position depends on, as I've mentioned, ongoing activities in terms of recycling as well as the fact that we have an ongoing net surplus from income in over the dividends that we pay out in cash. So there's still a reasonably wide range of outcomes for the balance sheet position at the parent by the end of the year. At the top end of that, we could be pretty much neutral. At the lower end, we could be a few hundred million dollars in net debt. We'll obviously see how those discussions progress. They have to deliver value, and they have to make sense, but something in that ballpark is probably the right range to think about.

And then your question on Mandarin, I think there are 2 primary factors to the lower performance in terms of profit. First is the renovation of our property in Hong Kong, which is a quite significant portion of underlying earnings. The second is not unexpectedly, some slowdown in our properties in the Middle East due to the conflict in the region.

Next question came from John Lam of UBS. There are 2 questions. How is the search of the I-MED new CEO? Second question, you mentioned significant progress of capital recycling in the second half of '26, 20% of the $4 billion commitment. How should we look at that?

Okay. So in terms of I-MED CEO, I think we have developed a very strong network of partners and relationships in the health care sector in Australia. And I think what we want to do is do a systematic search and look at a wide range of potential options for the business. We've appointed a consultant to help us with this. We're in the process of interviewing and discussing with the senior doctors within I-MED, management with I-MED on what the shape of a new CEO of the business will look like. And I do think by the end of the year, we'll be ready in a position to announce a new CEO. In terms of capital recycling, we have a number of initiatives going on across the portfolio. I think there's some low-yielding noncore real estate assets, both commercial and residential, we continue to work on. There's a number of other businesses, which we don't think will fit our long-term portfolio, which we're in the process of trying to explore exits on. And ultimately, we're also looking to further divest some of our public market positions. Ultimately, 2026 is a time period, and we'll deliver everything we can. But ultimately, our goal is to deliver this $4 billion of recycling across the non-Hongkong Land and non-Astra portfolio as quickly as possible.

Next question came from Karl Chan of JPMorgan. Karl has 3 questions. The first one on earnings guidance. The first half '26 earnings were up 9%, but full year earnings guidance is still just flat. Is this a conservative guidance? Second question on Indonesia. At the Investor Day, we said that we aim to diversify exposure. So however, JM has been increasing stake in JC&C. How should we interpret this? And with the recent geopolitical outlook, there could be more challenges in the Indonesian economy. Does JM has a plan B? The third question on macro. Some of the Hong Kong-based conglomerates takes a very cautious sense towards the global economy and that their priority is to recruit as much cash as possible. What's JM on the global macro?

Sure. I'll take that one. Look, guidance is guidance. We don't say whether it's conservative or whether it's reckless. We give you the guidance that we think is appropriate at this point in time. Clearly, it does reflect a degree of caution that would be reflected in a slowdown. But obviously, one of the reasons for pulling out the impact of the nonrecurring gain, which accounts for 4% of the 9% growth is to understand that things can pop up positively or negatively. As we said, we'll give further guidance when we get through the third quarter.

Okay. In terms of -- first off, the question around Indonesia, we have several things happening in Indonesian market. I mean, first off, there's a shock in the capital markets due to MSCI reviews and broader overall concerns about the macro economy. If you go back to the fundamentals around Astra. Astra's automotive business, Astra's financing business had an outstanding first half of the year. So as we step back as a long-term investor, we are focused on driving cash-on-cash return out of our Astra portfolio. And we continue to see value in that portfolio. We continue to do a lot of value creation work together with the Astra management. We have active buybacks going on within Astra and United Tractors. So despite macro global concerns around the Indonesian capital markets, the fundamentals of the Astra business continue to be ones that we're excited about. You should look at our occasional efforts to buy JC&C shares is -- it is TSR-driven. It is return-driven. And when it hits a certain level, we may and we may continue to build our stakes in JC&C ultimately because we see value as a way to drive earnings and a way to drive returns in our portfolio. In terms of broader macro, I think as we've talked about many times in prior sessions in our Strategy Day, we like Indonesia is a very significant part of our portfolio. Diversification is a good way. And I think the right way to balance off risk and somewhat volatile global macro conditions, and we will continue to do that. Part of our capital recycling efforts here reflects the desire to build a cash war chest and decrease risk in our portfolio and to strengthen our balance sheet. It doesn't mean as we do capital recycling initiatives, that capital is going to go out the door right away. I continue to look at the next 12 to 24 months as a period where Jardine needs to be careful and opportunistic and how it deploys capital. We're not going to deploy capital for diversification's sake. We're only going to put capital to work if we believe in the long-term growth of the sector, there's good quality return on capital for us and it meets our TSR objectives.

Next question came from Karl Choi of Bank of America. This question was also on earnings guidance, which we covered. Second question, why do redistribution of Toyota shares instead of outright sale of the shares? The second question, can you share more color on the qualities you were seeking for the new CEO of I-MED? Was the departure of the former CEO planned?

Okay. In terms of the distribution in shares of Toyota, first off, this was Toyota is an extremely important long-term partner of Astra and Jardine Matheson. We like our strategic equity ownership with Toyota and our recent sale of shares in Toyota and this distribution of shares was done in consultation together with TMC. So hopefully, that addresses your question. We want to have a holding in TMC. We like moving that holding to the top of the holding company and having that at the Jardine Matheson directly related to direct relationship with Toyota. In terms of your question around the I-MED's CEO, it was not planned. But ultimately, we made the decision to move the CEO on given some actions and some things we've found out. But ultimately, we think we can find and identify a material upgrade in the CEO. Important for us is that this transaction is a partnership between Jardines, the management of I-MED and the medical community within I-MED. And an important qualification we want in the CEO of this business is somebody who can build confidence and long-term relationships with the medical practicing community of the I-MED partnership. This needs to be harmonious and needs to work. And we think a new CEO coming in will significantly upgrade the culture and the way we work with doctors.

Next question came from George Choi of Citi. First question is on Hongkong Land. Within your investment property portfolio in Chinese Mainland is West Bund Central the only untouchable. If any of the properties in China does not meet the return requirements that Hongkong Land is looking for, will they be disposed of? Second question on JC&C. Does the name change hint that more capital recycling will be done there? What do you see the role of JC&C evolving over the next 5 years within the group?