Jardine Strategic - A Margin of Safety?

If you have read James Clavells books like TaiPan then you will love the Jardine group.

For the background see
http://findarticles.com/p/articles/mi_qn4158/is_20010620/ai_n14393712/pg_1
and
http://en.wikipedia.org/wiki/Jardine_Matheson_Holdings

I own Jardine strategic holdings, bought for its discount to Net Asset Value (NAV as reported in the balance sheet). It had turned up in a ROE/PTB screen I mentioned in an earlier post.

Some recent news.
Jardine Matheson the other jardine company said
"shareholders in Jardine Strategic are being invited to tender Jardine Strategic shares in the range of US$14.00 to US$14.50 per share representing a premium of up to 9.5 per cent. over the average closing price of the shares"

Source http://202.66.146.82/listco/sg/jm/press/p070815.pdf

and

"Net asset value per share up 27% to US$24.69"

Source http://202.66.146.82/listco/sg/jsh/interim/2007/int.pdf

So put simply the offer is at USD 14.5 - a big discount to the USD 24
NAV of Jardine strategic. An unacceptable offer, I am not handing in my shares. But maybe this is simply an ploy by the owners to prop up the price of Jardine strategic to prevent a raider from getting a big stake. The price has certainly risen to the offer price though I doubt anyone investing from the business perspective will sell at the offer price as it is below NAV.

So what you have is company growing in Asia available at a discount to NAV and it will not fall much more because of the buyback offer at 14-14.5USD - a margin of saftey. Right now it is trading around 13.5USD - 1$ less than the top of the offer range.

Stock Screen Analysis

I will be analysing stocks from my previously posted screens here.

Incidentally I also I increased my ownership of Soundwill holdings and added China Print Power to my personal portfolio. I also recommended TCS (No ADR) and Wipro (WIT ) on the Indian Stock exchanges to my friends and family. I do not like the WIT ADR because it trades at a premium to the Wipro stock on the Indian NSE.

• Chinese Estates Holdings Ltd 0127.HK (Hong Kong), price 12 HK$, p/Tangible book 0.72. Latest results say NAV is 16.74 HK$. In June the company said that it MAY be considering takeover offers. That explains the recent price surge, a takeover would be expected to be atleast at NAV. Has recently fallen since peak of 16HK$. Company has paid dividends consistently for 5 years, Has been buying back stock. Did make losses and not pay dividends like other real estate stocks in 2002 , If market values of properties fall, the company must reflect this as a loss, that is the biggest risk. Financial summary. NAV has grown consistently. I like their website, unlike some HK companies the site was easy to navigate and has a lot of information. See review of HK property maket. At 4.7% yields office property is not in a bubble. Worth a closer look.
• Melco International Development Ltd 0200.HK (Hong Kong) .HK$12.3, P/Tangible Book 2.0. High growth possible on huge investments in Macau. See announcements . Gambling and Macau! . Joint venture with PBL Melco PBL has ADR.Caps profile for ADR. ADR . Usual search at webb-site.com, turns up nothing interesting. Get your daily Macau news fix here . Article on the Ho family , recent problems.Tough call.
• Ellipsiz Ltd ELPZ.SI (Singapore). S$0.57, PE 4.5, yeild 2.5, p/sales 0.7, ROE 30, p/b 1.2, low debt. Semiconductor related business. See messageboard. Fall in prices due to failure of possible takeover. SGX announcements. Report. Slowdown in business expected. Cyclical business, made losses in 2003 but has tripled book value since then. Not cheap enough, prefer growing companies with higher yield or lower p/book. May buy if price falls below book.
  
• Yaan Security Technology Ltd YAAN.SI (Singapore), S$0.22, pe 5, p/s 0.7, ROE 29, Yield 2.8,no debt. Messageboard. SGX announcements .Report. Report. Very competitive business making video security monitoring systems. Sector expected to grow. Like low price. May buy if price falls more.
  

High ROE and low P/B screens

The results of my high ROE screen are here.
The results of my Low P/B screen are here.
The results of my 20% annualized return backtested screen are here.
I would have posted these in this article but the table formatting got messed up.

Singapore High RoE/PtB stocks reviewed

In a recent article in the Business Times Singapore (article removed) Teh Hooi Ling reports her study on using RoE ( return on equity) and PtB ( Price to Book) and the RoE/PtB ratio to select outperforming stocks on the Singapore Exchange. There was an update to the article on July 21(get it before it is archived).

By investing in only the top 10% of RoE/Ptb stocks she claims that from 1990 to 2006 you would have got a 41% annualized return excluding trasaction costs.

I am aware of the errors that can creep into such a study, I will not discuss them here, still I feel she is on to something good. The data on RoE and PTB in the article may be inaccurate. There are a lot of REITS and holding companies so not sure if ROE is relevant to them.


She also published a list of top ranked stocks. Let me analyze these here.

• Jardine Strategic . Let me quote Neil McNamara from jardine who replied to my questions on this. "ROE is not a ratio that we would normally calculate for Jardin Strategic due to the significant property interests through its investment in Hongkong Land. However, based on the shareholders funds at 31.12.06, the ROE calculated using the underlying profit for the year is 6.9%. If the net profit is used, which includes the movement in valuesof investment properties, the ratio is 18.5%. The latter calculation will fluctuate greatly from year to year due to the movements in property values. The price to book, based on the net asset value per share at 31.12.06 of US$19.38 (calculated using the market values of the underlying investments) and a share price of US$13.80, is 0.71." . Thanks to Cougar3 who said .."The two Jardines are jointed at the hip and have significant cross-ownership interests in each other.
  My guess is that ultimately Jardine Matheson will make a tender offer for the shares of Jardine Strategic they don't own (about 20%) . Of the two at current prices, Jardine Strategic is selling at a significant discount to NAV and imho is. by far, the more attractive
  of the two for current purchase. And, if I am right about the possibility of a tender offer by Jardine Matheson for Jardine Strategic this would likely be at a price around NAV in order to be successful. Thus, buying Jardine Strategic might be an attractive way to ultimately own Jardine Matheson at a significant discount to it's current price.Both Jardines are well diversified into core industries with extensive interest in not only Singapore and Hong Kong but mainland China, and all of SE Asia. They, along with Cheung Kong might be considered the equivalent of GE in the US. Hard to find companies that have been in
  business for 175 years like Jardine. Despite the big move both Jardine stocks has had over the past 5 years they remain attractively priced and "value" plays imho." A quick check at Shares Investement no 302 shows both companies Jardine strategic and Jardine Matheson have been profitable and paying dividends since record begins in 2002. Am placing a buy order for Jardine strategic.
• Noel Gifts. .
• New Wave. .
• HengXin Tech. .
• KSH Holdings. .
• TexChem Pack. .
• ContelCorp. ..
  
• Transpac Industrial. ROE 27 , PTB 0.95. Investment Company. See SGX announcements. Messageboard. Annual report. According to the annual report the Company has no staff costs as its operations are fully managed by its Investment Manager.See annual report pg 33 note 7, very roughly put investment manager is paid 20% of money made after tax. Income statement not important. Balance sheet shows it has grown book value from 1.55 SGD yr end 2002 to present 4.04 (calculated reported bv, ex latest 0.54 div and previous $0.36 div) and paid nearly 1S$ +latest s$0.54 in dividends. That very approximately means a greater than 20% CAGR book value + dividend returns. Very illiquid. No mention in Shares investment in recent issues so cannot look it up. Did badly a decade ago. Illiquidity and memories of bad years during the asian financial crisis may mean that it may trade at a larger discount of 20% or more. May buy this if it falls more around a PTB of 0.8.
  
• K1 Ventures. .
• Nera Telecom. .
• China Print Power. ROE 37, PTB 1.7, price 0.255 SGD,see messageboard,sgx. New IPO. According to Shares Investment issue 309 company has been profitable since reports begin from year end 12/2003. Div yield is around 5, p/e around 6, Long term d/e is around 22%. See recent report. Company is in a highly competitive business but I feel it is cheap and has limited downside due to dividend yield. Am placing an order. Update- Aug 14, am shareholder now. Read annual report, Change in auditor explained as due to people leaving old auditor. New auditors may have the same old people. Not significant.
  
• GP Industries. .
• China Paper. .
• Adroit Innovat..
• Plastoform. .
• Sunray. PTB around 1 at S$ 0.22, ROE 8.29. According to shares investment no 310 this Obs. &Gyn. medical apparatus maker has been profitable since records begin from year end 2003. 2007 was bad year with revenue declining around 20% and profit declining 50%. No dividends in 2007. Paid 0.007 S$ a year ago,payout ratio then was around 20%. Shares Investment article has phrases like "disruption due to fire in Gatong Industrial park.","restruct in medical industry". Also placed new shares at S$0.46 to Kim Eng in 2006. See messageboard, announcements,report. .Maybe this is just a small company facing a temporary problem. Selling by large holders. Last time an insider bought was here
  at S$0.29.Not sure about this one, will pass.
• Jardine Matheson. .
• NatSteel. .
• PCA Technology. .
• Jurong Tech Indus. At price 0.93.ptb 1.6, NAV S$.559, pe 5.8 yeild 5.4,d/e >1 See messageboard,report. High d/e will pass for now.
• HongKong Land.p/b >1 .See report. Not enough discount to book , will wait for more discount to book.
  
• Tuan Sing. at 0.35 sgd p/b 1.58 ,roe 22% p/sales 1.1, Long term D/E 0.71. See messageboard, announcements , According to Shares Investmnet isseu 210 There have been no dividends or growth in shareholders funds since 2002. Not to my liking.
  
• Allco Commercial Reit. p/b 1.05 at price 1.11 SGD, yeild 4.4 %. See messageboard, sgx announcements, report. Nice Reit promising stable returns, but not interesting to me.
  
• Fortune Reit. HK$6.25, yeild 5.48,p/b 0.73. See, outdated report, Sgx announcements, messageboard,website,factsheet. According to shares investment 307 has grown book value and paid dividends since 2004. Temasek holdings as shareholder gives some confidence to me. Need to investigate more.
  
• Broadway Indus. price 0.81SGD, p/b 1.7,yield .75%,ROE 32, LT d/e 0.15. See messageboard, announcements .Strange quick buying and selling by large shareholders on the SGX announcements page. According to Shares Investment no 307 has grown sales and profits since records start from 2002. Its in highly competitive business of manufacturing small machined parts. Not convinced, would ask for more div yield..
  
• China Printing.price 0.30, p/b 1.5, roe 28,yeild 3.4%, LTd/e 0.05, .See messageboard,SGX announcements. New listing profitable since records available -2005Worth more research.
  
• Bright Orient. SGD 0.17 , p/b 1.1.4,yield 2.48%, p/e 12.9, ROE 9.39,Lt d/e 0. Apparel manufacturing and retail co .See messageboard, SGX announcements. Annual report. Margins low. Will wait and monitor more before investing.
  
• AEM. ROE 18, P/B 1. see messageboard. Legal problems. Senior management, CEO under investigation by CPIB- sent on leave replaced by acting CEO.SGX announcements. Atlantis Investments increasing stake in open market. If you like special situations this is for you.
  
• Valuetronics. SGD 0.26, PE 9, yield 3.4,ROE 33, NAV 0.123, P/b 2.1, Zero Long term debt. Electronics contract manufaturer.See messageboard, announcements, IPO prospectus. According to shares investments 310 has been profitable since records begin from 04, listed on SGX in 07 at 0.26. Looks good to me. Need to compare vs Electrotech.
  
• Singapore Windsor. Price 0.30 SGD,NAV 0.35,p/e 6,p/b .86,yeild 6.18%,ROE 26. PCB related manufacturer ( why so many on this page?). See messageboards,announcements, annual report. According to Shares junction 304 profitable since records begin in 2003. Listed in 2006. Looks cheap.

Its here! DEM - Emerging Markets High-Yielding Equity Fund

See this announcement. The corresponding index is here.

I have been waiting for this for a long time. Dividend weighted indices where stocks are present in the index in proportion to cash dividends paid appeal more to a value investor than a market cap weighted index where stocks are present simply because their market cap is high. Market cap is (no of shares) X (price per share) or what you would have to pay to buy all the shares in the company.

Anyway the numbers as mentioned in the links above are:

Dividend Yield	6.28
Price/Earnings	14.87
Estimated Price/Earnings	N/A
Price/Book	2.22
Price/Sales	0.68
Price/Cash Flow	5.57
5 year volatility	18%
10 year Index backtest	15%
vs 10 year MSCI EM	9.4%

India and Russia surprisingly have less than 1% representation each. China is represented indirectly via H shares listed in Hong Kong. The ETF expenses are a hefty 0.63%.
The underlying index has a compelling 6.47% gross yield however as they warn
"Gross Index Yield reflects yield on index constituents prior to individual country
withholding taxes and is not related to the distribution yield of the fund." The volatility is also high - not that a buy and hold for decades investor like me cares about volatility.

To summarize I would prefer this to EEM. I admit to a personal bias for fundamental indexing.

I do not have a position in this yet.

Personal portfolio

Here is what I own and why.

• Indian Mutual Funds
• HDFC Equity - Not merely outperforming but crushing the indices for 10 years. Manager Prashant Jain has been around with the same fund team for a decade (Zurich then taken over by HDFC). He took over this fund a few years ago when its previous manager Chandresh Nigam left. Knowing that Prashant has an exceptional record with HDFC prudence I decided to retain this fund.
  
• HDFC Prudence - Prashant Jain - manager since 1994. Outstanding record - see the link for yourself. Formerly the fund was a balanced fund 60% equity 40% debt, Now it is an "Equity Oriented fund"70% equity 30% debt. The recent increase in Equity allocation is to take advantage of Indian Tax laws that state - no taxes on equity oriented funds held for more than one year. I am no fan of mutual funds, these have sales loads of 2.5% and annual expenses of 2% but their returns have more than made up for that. I do not like balanced funds either, there is no reason why any long term investor should hold bonds in his portfolio. HDFC equity is preferable to HDFC prudence unless you have some expenditure planned in the coming years and want to limit your downside. I bought this fund a year or so ago as I wanted less downside due to foreseen personal expenses. Now that those expenses are paid for I intend to sell and move to a 100% equity portfolio. The best time to sell this however eludes me. I would wait for a dip in the markets to sell this and buy either HDFC equity ( a no load switch within the same fund house ) or Franklin Opportunities ( will have to pay load).
• 
  
• International ETF's
• DFE - See the Index here. Small value stocks from Europe. Fits in nicely with my theme of owning small value stocks. I like the Wisdomtree dividend weighted Indices.
  
• EWY - MSCI Korea was cheap compared to Singapore and Taiwan when I last looked. Was bought when there was tension with the neighbor to the north. I do not own EWY but the equivalent Lyxor MSCI Korea ETF trading on the Singapore Exchange.
• International Stocks
• Bright World Precision Machinery - Turned up on a Greenblatt style low P/E, high ROE , no long term debt screen. Bought on the Singapore Exchange. I usually sell such stocks when they cross a P/E of 20.
• Second Chance Properties - Turned up on a high dividend yield screen. Bought on the Singapore Exchange. Need to review this when latest results come out.
  
• Food Junction -- Turned up on a high dividend yield screen. Bought on the Singapore Exchange. Company faced a recent setback in china. Need to review this. See recent discussions here.
  
• 0878.hk -- Soundwill Holdings. Low P/Book stock. Thanks to "idoke" on the chucks_angels yahoo group for suggesting this one. Bought on the Hong Kong exchange.
• 0557.hk-- City e-Solutions. Low P/Book stock. Thanks to "deepmarginofsafety" on the chucks_angels yahoo group for suggesting this one. Bought on the Hong Kong exchange.
• Brk-b - Berkshire Hathaway. Have discussed this in previous posts. This is where I park cash when I have no better ideas.
• Recent Sells:
• Sinwa - Greenblatt style pick. Bought on SGX. Reached exit point of 20 P/E.
• STI - Streettracks Straits Times Index ETF. Like the MSCI Singapore index (EWS) but with many more stocks. Trades on the Singapore Exchange. Attempted sell when the STI hit a P/E of 20. Sell order failed, have to investigate.
• 2600.hk - Aluminum Corp. of China Ltd. (Chalco, ADR is ACH) . Was a low P/Book pick. Looks like I miscalculated P/Book. Sold as soon as I realized error. Will not ever trust yahoo finance for my data. Was lucky to make a profit.
  

What I do not own but recommend

• My family has investments in assorted tax saving Indian mutual funds and some short term debt funds. Tax saving funds are the best way to make your tax saving investments. Short term debt funds are a good and liquid way to park excess cash you may need in the near future.
• My suggested portfolios for Indian Investors are on the longtermequity yahoo group. These may differ from my personal portfolio.
  

Indian ADRs - losing their premium.

Infy has lost its premium on the US Nasdaq exchange vs the Indian Bombay stock exchange.

See this page from Equitymaster.

DR Reddy(RDY), HDFC bank (HDB), ICICI (IBN), And Infosys(INFY) are some good stocks with an ADR premiun of less than 5%.

I will write more about these when I have the time. I do not own any of these directly, but may have indirect holdings via mutual fund.