187-year-old Jardine has had a rough 2019 and it may get worse

SINGAPORE (BLOOMBERG) - The prospects of Singapore's biggest conglomerate are souring as it has been caught in a perfect storm of intensifying global trade tensions, prolonged protests in Hong Kong and slowing auto sales.

Jardine Matheson Holdings, whose businesses range from automobiles and hotels to supermarkets all around Asia, has seen its share price shrink 23 per cent this year, putting it among the worst performers in Singapore. The sell-off accelerated after the company's first-half earnings missed some analysts' expectations earlier this month and as demonstrations in Hong Kong, which houses its headquarters, reached a boiling point.

The Singapore listed units of the 187-year-old conglomerate founded in Canton as a tea and opium trader are turning from among the city-state's steadiest stocks to the embodiment of volatility this year. That chaos featured a flash-crash triggered by haphazard sell orders that erased more than three-quarters of its value. The stock is set for its first decline in four years.

"With the backdrop of a trade war and the risk of a currency war, there could be further negative effect on their earnings" after disappointing results in the first half, said Derek Tay, the head of investments at Kamet Capital Partners Pte, a Singapore-based multifamily office. Jardine Matheson gets most of its revenue from auto sales, "which haven't been great globally," he said.

A spokesperson for Jardine Matheson referred Bloomberg to its 2018 annual report when reached by email. "Overall results will depend to a large extent on consumer sentiment in our key markets," chairman Ben Keswick said in a statement on Aug 2.

FALLING PROFIT

The company reported a 3 per cent decline in underlying profit for the first half amid a "challenging start to year" for its key unit Astra International Tbk, an automobile distributor in Indonesia, it said in a presentation to analysts on Aug 2. Astra's automotive business saw an 18 per cent decline in net income during the period.

The group that started in 1832 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 toward South-east Asia, where it now runs Pizza Hut restaurants, hotels and Mercedes-Benz dealerships.

Analysts at Goldman Sachs Group and Citigroup have lowered the company's fiscal year 2019-2021 earnings estimates by 3 per cent to 12 per cent citing the US-China trade saga. "We do not foresee a significant pickup in Jardine Matheson's earnings in 2H19," Goldman analysts wrote in a note on Aug 5.

United First Partners' head of Asian research Justin Tang is also worried that the US-China trade war is weighing on consumer confidence, and warned that Astra seems "late to the party" for participating in the ride-hailing business via Gojek, he said. "Grab, Uber etc have been around," he added.

"There is earnings risk and currency risk, and these are things we shouldn't neglect for a company like Jardine," Tay said.