Posted by: donmihaihai | October 22, 2021

Jardine cannibalisation

SGX listed companies doing more share buyback in the past 2 years? I don’t know but would like to think so, since a number of companies that I have invested in bought back shares or in the process of doing so. When share buyback is conducted in the right manner, I cheer for it. Also, companies should buyback shares for their share option scheme because it is tax deductible for Singapore incorporated company. Those who doesn’t, only mean 1) tight or lousy cashflow or 2) ignorance of local tax.

I don’t trade. Short term movement of share price mean nothing to me unless it is a 100% or 200% surge. So, when HK Land share price increased from just over USD4 to USD5 while it conducting buyback, I didn’t cheer for it.  I am not selling at USD5 or USD6, so over a longer period, I benefit twice when HK Land is able to buy back more shares with the same amount of money. 2nd when buyback flow to JMH.

JMH is also conducting share buyback and has spent over USD1B in the last 2 to 3 years.  Add that to USD5.5B acquisition of JSH remaining interest, total amount spent to close to USD7B and this amount is on top of operating Capex by its subsidiaries. USD7B is an elephant in the room when it is more than 1/3 of its current market cap and at certain point last year, about 50% of market cap.

But the market doesn’t like it and I hope that not just the market doesn’t like it, it is even better to question and hate it. I don’t need share price to keep going up to feel good.

What is the market value of JMH? If I look at SGX website or elsewhere it will be listed as USD41B. That would be like 721million shares X USD57. What is the market value of JMH when wholly-owned subsidiary JSH own 59% of JMH, ie 59% of 721 million shares. Easy answer really.

What make it so hard when JSH was 85% subsidiary of JMH ie the cross holding?

When JMH spent USD5.5B to buy 15% of JSH which valued JSH at USD37B. Is it cheap? Of course not! JSH shareholders’ equity was about USD36B. But then it was not 15% but 30%, when you will get 50% reduction in share counts when multiple 85% X 59% and JSH was valued at USD18.5B as JMH was buying about 30% of JSH. A discount to BV is appropriate for valuing JMH and JSH because of HK Land.  

There is little interest in Jardine and who care what I wrote. The only article written recently on Jardine buyback doesn’t understand what they are writing about.  


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