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Suzanne Harrison

The Asian financial crisis was a lesson in hu mility to many high-flying Asian companies, even to giants such as the Jardines group. However, the lessons learned by Jardine Matheson Holdings (JMH) have turned at least one long-time cynic of the company into a buyer.

 For almost 14 years, Kim Eng Securities research director Stephen Brown has been less than complimentary about JMH, which holds controlling stakes in hotel group Mandarin Oriental International, Dairy Farm International Holdings and Hongkong Land Holdings.

 Mr Brown has now changed his tune.

 He describes Hong Kong's oldest conglomerate - which moved its listing to Singapore in 1995 - as having grown wiser and less arrogant after its recent sufferings.

 Kim Eng has placed a buy recommendation on JMH, whose history goes back to the establishment of Hong Kong in 1842.

  'Jardine Matheson had banks throwing money at them so they poured capital in and did not get returns. The Jardines group was into prestige and presence and financial engineering . . . and it's been like, 'we own the Mandarin, we own Hong Kong,' well, who cares?,' said Mr Brown.

 'One of the good things about not having the banks queuing up to hand you money [during the crisis] is that you have to have a long good look at yourself, and some companies are starting to run themselves better.

 'This is US best practice coming to the Jardines group . . . and it needs to make money . . . especially now that capital is harder to come by.'  Mr Brown believes that key personnel changes and a focus on shareholder value are turning JMH into one of the best managed groups in Asia.

 Kim Eng estimates a net profit increase to US$241.2 million for this year from $50.6 million last year. Before exceptionals, net profit would have been $190.2 million last year.

 The net profit outlook compares with expectations from the Estimates Directory of a rise to $203 million.

 JMH's focus on marketing, trading services and office space left it vulnerable as the Hong Kong economy shrank 5.1 per cent last year.

 The region's downturn took a toll on its luxury hotel business. Mandarin Oriental lost $4.3 million, compared with a $45.7 million profit in 1997.

 Mr Brown said the substantial falls in profit gave the company the final boost it needed to change tack.

 He said non-core businesses had been disposed of and free operating cash flow was soaring.

  For example, in December last year, the group agreed to exchange its 50 per cent interest in Jardine Fleming Holdings for 13.6 per cent of Robert Fleming, a privately controlled British merchant bank.

 Refurbishment of significant properties in Hong Kong, such as the Prince's Building and the Landmark, were examples of investing small amounts of capital to provide more.

 JMH has been lifting its Jardine Strategic Holdings stake from 58 per cent at the end of last year to 61 per cent.

 Group balance sheets are clean and buy-backs and dividend growth would be a feature, Mr Brown said.

 Mergers and acquisitions were expected at all levels.

 'Ultimately, the operating companies were run in a very old-fashioned way,' Mr Brown said.

 'But now we've got people who really understand the importance of shareholder value.'  Brought in from the US was Ronald Floto, a former K-mart executive who is now running Dairy Farm.

 The former finance director of Dairy Farm is now heading up the Mandarin group.

 Norman Lyle, from British drugs company Zeneca, has taken over as head of group finance.

 Mr Brown said the Mandarin group also was looking at expanding in the US, but possibly would take on management contracts instead of buying buildings.

 'American investors will buy if they can see companies being run properly by getting rate of return in excess of cost of capital,' he said.

 'Jardines is very promising and I'm singing their praises now.

 'It's now probably the best managed company in Asia and the market is only now starting to pick it up.'  Mr Brown said the driving force behind the US bull market was this focus on capital returns.

 JMH's shares closed down 3.16 per cent at $4.28 in Singapore on Friday.



Asian crisis puts Jardines back in broker's favour