Unlocking Jardine Matheson's holdco value with Cayucos Capital's Dom St George
Summary
Investment Theme: The podcast discusses Jardine Matheson, a holding company trading at a discount to its net asset value (NAV), and explores its potential for unlocking value through strategic changes.
Company History: Jardine Matheson has a long history, dating back to its involvement in the opium trade, and played a role in the creation of Hong Kong as a British colony.
Management Changes: The fifth generation of the controlling family has consolidated control and is bringing in private equity professionals to drive strategic changes, including unwinding complex cross-holding structures and making significant asset disposals.
Asset Management Strategy: The company aims to transform into a more asset-light model by managing third-party capital, particularly in its Hong Kong Land subsidiary, which plans to return up to $10 billion by 2035.
Market Valuation: Jardine Matheson trades at a 16% discount to NAV, with potential for further value realization through asset sales and simplification of its business structure.
Potential Risks: Concerns are raised about the possibility of empire building, where the company might reinvest proceeds from asset sales into new ventures rather than returning capital to shareholders.
Strategic Focus: The company is focusing on simplifying its structure and potentially privatizing certain subsidiaries, such as Dairy Farm International and Mandarin Oriental, to unlock value.
Key Takeaway: Jardine Matheson presents an opportunity for value investors due to its strategic shift towards simplification and potential for significant asset sales, although risks of reinvestment and market skepticism towards conglomerates remain.
Transcript
You're about to listen to the yet another value podcast. Uh today's episode is on Jardine Matson. Jardine Matson is a whole co trading at the sum of trading at the some of the parts discount. Uh our our guest Don from Kaio Capital has done you know he's got a 200y year history here. It's really interesting. It's an interesting discussion. And you know I think the thing in the back of my mind is 10 years ago when I first started out I I I used to love hold codes. It was all I did. You know, you take a company, hey, $100 per share of like tangible value trading with, you know, 50 of cash and 50 of stocks and trading for 80. Awesome. And over the years, I have just I mean, the history of hold codes over the past 10 years has been awful. And that's, you know, hold codes with shady management teams have been terrible, too. But also, a lot of the greats who had hold codes, they have done really, really poorly. You know, I'm looking at you IA, I'm looking at you, Liberty, uh, several, several others. They've really underperformed. So, I've gotten really skeptical of hold codes over the past 10 years. I I think you'll hear that in the conversation. I think it makes for interesting divergence of style. So, we're going to get there in one second, but uh you know, obviously international stocks. So, full disclaimer, extra risk in international stocks. See our disclaimer at the end of the podcast, but we're going to get to the podcast in one second. First, a word from our sponsors. This podcast is sponsored by AlphaSense. Look, AlphaSense has been a longtime sponsor of the podcast. I am a super happy user of the AlphaSense products. everything ranging from their AI platform for investing, but particularly the expert calls that I use on a daily basis to look at companies and kind of see what industry insiders who are doing more than I'm doing, which is just being a dummy and reading the publicly traded filings and reading trade. Industry insiders are telling me about how business is actually working on the inside and how they're viewing trends and everything inside it. So, super huge fan of the platform. If you're interested, AlphaSense was kind enough. They just sponsored a free webinar with me and a former at Mastercard where we talk about the future of finance. In particular, we're talking about stable coins and their effect on the overall economy, how they could impact remittances, how they could impact particularly payment networks because he's a former at Mastercard. I think it's a really fascinating interview. I think you're going to, whether you're a journalist or a specialist who focuses on it, I think you're going to learn a lot listening to it. And if you listen to it, I think you're going to, you know, see why I think expert call networks are kind of the most revolutionary product for investing, for journalists, for specialists, for everything to come along in the past 10 to 15 years. So, if you're interested, I'll include a link in the show notes to go check out that webinar. But, uh, thank you to Officer for sponsoring this podcast. And now on to the podcast. All right. Hello. Welcome to the yet another value podcast. I'm your host, Andrew Walker. With me today, I'm happy to have on for the first time Don St. George from Kyoko's Capital. Dom, how's it going? >> Good, thanks. It's a real pleasure to be here. >> All right. I'm super excited. Uh, before we start talking, just remind everyone on this podcast, nothing on this podcast is investing advice. Always true, but we're talking about an international stock today, so that carries extra risk. Consider that. See the full disclaimer at the end of the podcast. Uh, Dom, the the reason you're hopping on, you did a great write up on your Substack. I'll include a link in the show notes for anyone who wants to go read the full thing, but it's on Jardine Matson. The ticker there is JM, but it does trade international, so people will have to kind of go find that. You've been covering, I thought what was so cool is twothirds of the way through your write up, you mentioned, hey, I've been following this stock since 2012, I think. So, you've been following it for a long time, but I I will just pause there and ask, what is Jardine Mat and why are they so interesting? >> Yeah, thank you. So um I love to delve into the ancient history of companies and so I can't get going without talking about the founding story here because it's just so fascinating. So most people will be aware of uh the East India Company uh which in the 19th century had a monopoly on trade with India the British East India Company. Um and fewer maybe will be aware that uh one of their main exports out of India was opium. Um but the East India >> I think if you've ever watched a TV show with like a little historical fiction I think I think they make it pretty clear what was coming out of the East India Company to be honest with you. >> Okay. Okay. Um, so may maybe more well known than I thought, but um, so they didn't want to actually send their people into China directly. They didn't want to ruffle too many feathers. So they left the actual uh, import of opium into China uh, to enterprising traders such as Jardine and Matson. And William Jardian in particular made so much money from this trade as you can imagine um that he used that wealth and also his his seat in the House of Lords which is similar to the uh Senate in the UK to uh lobby for the end of the of the monopoly that the East India Company had. And eventually he was successful and so you know the East India Company tried to kind of limit the flow of of of opium. Uh whereas when that monopoly ended you had a complete freeforall of uh of opium coming into China and that's what forced or made China decide to to to ban opium outright. And that was so uh you know deletarious to to the British Empire that they went to war with China uh over that ban. And it was the the subsequent treaty after that war that led to uh the creation of Hong Kong as a as a British colony. Um so basically the history of this company uh led in effect to the to the creation of Hong Kong as a British colony. Um so let let's uh fast forward a couple of centuries. Um and Johnny Matson really for context I describe it as a perennial value stock. Um and you know anyone with a valuation value inclination in Asia probably sort of groaned when you know they they saw somebody pitching the stock because it's been cheap forever. And the reason for that is that the group essentially made a uh a levered uh property bet in the mid 80s which turned out to be very poorly timed. came months before the British and the Chinese announced the eventual handover of of Hong Kong back to China and that led to uh you know a property slump uh and the company you know started to be circled by uh wouldbe would be suitors. And so in order to avoid takeover, the the group basically instituted a very complex um crossolding structure where they had two holding entities each with controlling shareholding in the other which essentially made it impervious to to outside influence. And so anyone who's looked at this over the years, as you mentioned, I first looked at it in 2012. It's always traded at a large discount to NAV or some of the parts, but ultimately, who cares? Um, but um there have been some quite substantial um changes um in recent years. So it seems that Ben Kzich who's the fifth generation of the family has has sort of consolidated control over the group and he's done a number of very interesting things. The first thing is to uh unwind the crossolding structure. So there's one clear um uh holding company Jardi Matson. Uh secondly, there have been a number of disposals uh that the group has met across the group uh which I add up to uh around $4 billion which is pretty substantial relative to what is today an $18 billion uh market cap. Um and so the group has been very the third thing is that the group has been very insular historically. you know, they had a a graduate scheme which trained train trained people up and basically all of the the the senior executives were were lifers. Um, and the thing that really caught my attention was that they announced earlier this year that uh they were bringing in a new CEO, a gentleman named Lincoln Pan, who was the and is the co-head of private equity at Pag Group, which is one of the largest private equity groups in Asia. And when I started to dig some more, I realized it it wasn't just him. Uh they have a number of senior sort of big swingers um from from private equity on the board. So there's a a gentleman from KKR and a lady from Carlilele. Um, if you look at who who's now heading up the China business, uh, it's it's a guy called Steve Sun who was co-head of China for TPG and his number two was um was, you know, a senior investment banker for I think the head of Asia for for for Bank of America, Meil Lynch. So, it's and and just to reiterate, so Lincoln Pan actually starts on the 1 of December uh, in a couple of months time. So despite the $4 billion of of disposals they've already done, it's quite clear there's there's a lot more to come um and and they've they've sort of given us a road map for for some of that um which I can get more into. >> That's great. So let's just pause there. Okay. So you've got a company with literally centuries of history, right? And what you're saying is, hey, Fifth Generation kind of comes in. They've been there for a while, but they've really just cemented their control. hired a bunch of outsiders with deal experience who are coming in and you think the path from here is great. So let's just start normally ask why is this an opportunity but I think you kind of laid out I think the place to start would be hey as you and I are speaking here today you know frame the upside for me the stock is trading if I just pull this up the stock is trading at $63 I guess that's HKD but it's trading at US >> it is okay it's trading for 63ish per share what does NAV look like here what does value look like here >> yeah So again, I so I've done a some of the parts uh almost all of the entities of the group are publicly listed, so it's pretty easy to do. And so uh I get to basically a 16% discount to any NAV, which is not very exciting in and of itself. It's more all of the potential corporate activity that could happen. >> Then let's so we could go through the different pieces of the NAB. I thought one of the really interesting pieces is they've got uh Hong Kong land and they there's the market price and then they say, "Hey, if you look, these are trophy assets. We think the real value of them is like 2x the market price." I thought that was interesting. We can talk about all those pieces, but as you said, one of the questions I'm going to come back to is, "Hey, 16% discount's an app. That's not that interesting." At Hulkos, what is the go forward path that makes you so excited? You know, what is the go forward path? Because if you told me 16% discount, they're liquidating tomorrow. I'd say, "Oh, that's pretty cool. 16% discount." like what are they going to do to grown nav or that we're going to kind of you know as I like to say what are they going to do that we're going to capture a riskadjusted alpha opportunity by buying the stock at a 16% discount to a >> yeah so I mean I think it would be useful to to start getting into the into the businesses um and as you said so very roughly you got one-third Hong Kong landird Astra International which is the largest uh business in Indonesia by revenue very broad conglomerate and then one-third everything else. Um, and so starting with Hong Kong Land, uh, it's it's about a 13.5 billion dollar uh, market cap today and they own 53% of it, but they would tell you um, the net ass net value of their assets is actually 35 billion. Um, and so, you know, what's the differential? I mean, one, they're a little bit aggressive in terms of the cap rates they use. So the biggest portion of it about twothirds of it are Hong Kong office. Hong Kong office is about half of Hong Kong land and then a little bit more comes from Hong Kong malls and they use a 3ish% cap rate um on on those assets. Um so you could say well that's a little bit aggressive. But one thing that one data point that is pretty quite interesting is that they actually sold um one of their space they sold nine floors of of one of their prime Hong Kong towers uh earlier this year to uh the Hong Kong stock exchange at roughly you know a similar cap rate cap rate. Uh and I also think that's quite symbolic because you know as I say it's a real it's basically the jewel in the crown. it's it's the asset that that they almost went bust buying in the 80s. So, it kind of demonstrates to me that um you know, they're willing to sell anything or and everything. Um and so again, $ 13 and half billion dollar market cap. They've announced that they want to do 10 billion up to 10 billion dollars of capital return by 2035. Now that's quite a long lead time obviously but it's because most of it comes from basically winding down uh the uh the development assets that they have you know they're building office towers and malls uh mostly in in China let's so when we talk about the 16% discount to NAB that Jardian Athens trades for right we're talking about on Hong Kong land which is about 33% of their using the market price to get They're saying, "Hey, we think this is worth double, more than double the market price." Who do you think's right? Do you think they're right or do you think the market's right here? >> Well, I mean, I think it's somewhere in the middle. Um, I don't want to say that the the market is wrong. Um, but I think the reason Well, I think the reason it's interesting is that they are actually making steps to realize that NAV at close to their cap rate. Um, What? Because I what's interesting here is if I just do the math in my head, right? If they've got $33ish of their $100 per share value, if I'm just kind of doing that as a nav, a at market price, if you say it's they think it's that 33 is worth 66, you think it's somewhere in the middle, so it's worth 50, that takes your NAV discount from 17% to about 33% just on on that alone. I I guess my push back would be like, look, I've done a lot of these hold cove investing. When I first started, like all I was do is hold coast to my detriment, right? I I just love these things and I was like, "Oh, these smart families that control." Over time, I've gotten really disillusioned with them. And one of the reasons I gotten disillusioned with them is every time I heard had a control hold code that said, "Hey, we've got this crown jewel. Uh, we think it's worth way more than anyone getting." Traditionally, it was actually really bad. And it was bad in one of two reasons. A, they way overvalued it. Or B, they way overvalued it. And because the market was trading at 33 and they thought it was worth 66, they plowed more money in it. And then when the market turned out to be right, they had wasted all the money. So I I guess when I look at the them saying, "Hey, Crown Jewel worth these low cap rates," like I I get really worried that it's got the traditional disillusionment of hold codes, if that makes sense. >> Yeah. I mean, I think you're totally right. And and actually, you know, I I I'm always very hesitate hesitant to describe myself as a value investor. And the reason for that is similarly I've discovered that um a lot of the mechanisms to recognize value that exist in the US let's you know activists for example private equity directors with statutory responsibilities to minorities um even bankruptcy you know transferring assets from bad owners to good a lot of these uh mechanisms they just don't exist or they exist to a lesser extent uh in emerging markets or or even internationally. So you do have to be very skeptical. Um and so you know alignment with with the the key decision makers is is very important. Um but I think there's there's just so much evidence here that they are shifting the portfolio from >> Great. Let's go to that then. Right. I I I think the crux of your thesis is, hey, you have this company where the fifth generation, even though they've been there for a while, they really just cemented control, right? The fourth generation, as you say in your write up, uh I think you've got science progressives by funerals, and you say that's how family hold codes work, too, right? The fifth generation really just took full control because the fourth generation died out. And you say, "Hey, they're bringing in these heavy hitters to be the next CEOs, right? They're going to bring in private equity firm." And I get that. That is exciting. and you say, "Hey, they're they're only bringing in the private equity uh heavy hitters for one reason. The private equity heavy hitters are going to be on the other side of investment bankers and other private equity firms and deals." And I think you alluded to that being asset sales and capital returns is kind of where your mind. That's not where my mind goes. Like this is a fifth generation family company. I don't doubt they're going to sell some, but my you know what you're kind of suggesting is a windup. And when I see them hiring all the, you know, a former BFA, head of private equity, what I see is, hey, we're going to go do a lot of investing. And yes, maybe we sell the old stuff, but we're going to be full speed ahead building out a family hold code. This is going to be a conglomerate. And I'm worried that's the direction they go because if that's the direction, 16% discounts. Now, maybe they hit home run after home run. I don't know. I think the base rate is when you're doing a family hold co investing the base rate is the the investments are done with a quote unquote long-term time horizon and that's quote unquote long-term time horizon because they all underperform and you say hey one year one year is going to be our year. So I threw a lot out there but what do you kind of think about just like that go forward because I think that's where you think the catalyst is. >> Yeah I mean I to be clear I don't think this is going to be wound up and the whole thing's be taken private. I just I'm arguing for simplification and there's so much lowhanging fruit to achieve that simplification and I think I think you are right. So let's get if we get into the people who they've hired to run Hong Kong land. So again outsiders um the the CEO who's hired also a CIO chief investment officer both of them came from Maple Tree which is the real estate subsidiary of Tomas the Singapore sovereign wealth fund one of the biggest insttors in Asia and interestingly they both before that were at Goldman Sachs and at Goldman they did a lot of the REIT uh IPOs in Asia um and if you look at their presentation they They are saying we're going to go from about $40 billion of assets under management to a hundred billion dollars in part by managing third party capital. So they become they're going to become in part more of a an asset manager as opposed to you know just owning 100% of everything and and you know trying to generate returns that way. So that it's become the plan longterm has to become more of a a fee business and that you know the people they put in charge are indicative of that. >> I I mean that is certainly interesting but it's a lot of money to raise and you have to hire a whole team and build out like >> uh let me ask two questions base rate. Have you seen family hold co successfully build asset management build businesses like they're kind of suggesting here? >> Um that's a good question. Um I mean I have seen um family companies raise third party minority stakes in in group companies. Um generally for generally for exor is going to buy the economist they buy 80% and they bring in co-invest for 20% right but that's more co-invest like they're talking about going from 40 to 100 billion and if they could raise 60 let's just say it's 60 billion of outside capital at one and 10 I mean you would put a a feast you would put a multiple on that that would be worth quite a bit of money that would cover a lot of overhead here so I'm interested you know it I I can't think of any examples of one having done that. Doesn't mean it can't be done, but if they could, and it seems like that that that is interesting. I just can't think of one that's done that. >> Yeah. Um I mean, I think it's it's the direction of travel. I mean, whether they're going to get to 100 billion, I mean, that's that's quite an aspirational thing. But I I do think if the more they can do to demonstrate that the 3% number, you know, 3% cap rate they're using is actually a number that people are willing to pay, third parties are willing to pay, I think that's all, you know, that's all positive. And again, you know, the $10 billion they want to return from Hong Kong land by 2035 is a slow pace, but you know, just this month, they announced uh $660 million sale of a Singapore Malaysia focused um residential developer. So, you know, it's a business, you know, I didn't really know even existed, uh that they sort of plucked out of their portfolio and and and put a $660 million number on it. Not bad when uh you don't even know there's something in there and it return. Let me ask this question a different way. Uh this is a hold co fifth generation. He's hiring a bunch of private equity people. You know, forget what I said about third party. Uh you've done a lot of hold codes. I've looked at a lot of hold codes. Can you think of family controlledish hold that have transitioned to kind of the professional group? you know, they're hiring a private equity firm, they're hiring former bankers. Can you think of one that has done that and kind of done well? >> Well, I mean, you mentioned Exor. I think that would that would definitely be up there as as one of the best. Um, >> you know, it's funny you mentioned Exor because I'll just transition to X. You talk about the 16% discount. Exor has done quite well in terms of NAV and compounding. I I looked at XOR when I was prepping for this. Exor NAV they painting it as 180 per share and they're trading at 80 80 euros per share. So I think the results have been good. I I I haven't followed them as closely as you used to but I I I would just say like they're trading at 40% of NAV. It looks like if that's right like if that's a good case here, you know, careful what you wish for, I guess. >> Yeah. I mean the the market in general does not like conglomerates. Um, I think that's absolutely clear. I mean, there's there's a there's a family conglomerate in in South America that have have made phenomenal decisions long term. >> Is this a process? >> Uh, no, this is it's called Kienka. Uh, the it's quite a small free float. Um, but it's a Chile based group and they've they've made some fantastic decisions. But again, you're right, the discount to NAV is is I haven't looked at it very recently, but it's kind of 50 60%. Um, so that yeah, the market doesn't give businesses credit. Um, but you know, every dollar that's that's returned to shareholders, you know, I I value that dollar in my pocket at, you know, at a dollar. So, um, if if a lot of it comes back to us, then, you know, that that can lead to to good returns. >> I I actually think what you what you just said is what I was kind of trying to strive at as my risk factor, right? To me, a family hold co a a hold co at a discount is great if they're going to return the capital, right? Like a liquidation windown. I I I think what I'm worried about here is okay, Hong Kong land, right? They sell and they realize it's trading at a 6% cap. They think it's worth three. They realize at a four, four and a half, four, whatever it is. Like what I'm worried about is because they hired all these PE guys. The answer is not going to be take that money from Hong Kong land and return it to Jardy Mat shareholders. Now, Hong Kong land might return it, but once it gets to the jingy mass levels, I think you've got these PE guys who are going to say, "All right, it's time to go buy something, right?" And the history of that is poor. And I worry I again I haven't followed exor closely in a while but I kind of worry you go get the exor treatment or you get the South American treatment you're talking about where hey they do great sales they go plowed into new businesses and the stock just lags and it just keeps trading under NAB and you have just kind of a perennial underperformer I guess would be where I'm trying to drive my worry to. Yeah, I mean it's certainly possible and uh you know the to be clear the recent history of the investments that this group has made over the past decade have been very poor. Um and I guess one of the things that's interesting to me is a big part of those that $4 billion of disposals they've done in the past four years that's unwinding past acquisition. So it seems very much like they're in sell mode rather than buy mode. But it is possible that once this this sort of private equity team is assembled, you know, they're clearing the decks in advance of that and then they will go out and do more M&A. I mean, I think they know that the market will not look uh fondly on on on M&A, but they you're right, they may not especially care. >> I was Are you familiar with Liberty Media at all? >> Some Yeah. >> I I was reading John Malone's book. We just did our book club on it. Uh, and the thing I was laughing at is every decade AT&T can be trusted to make a terrible acquisition and then unwind it. But you know, when you're saying Jordan Matson, the one of the reasons they get into the complex hold structure is in the 80s they buy real estate at like the height of the market, right? And it takes them almost 40 years to unwind that evil. And then in 2020, as you say in your write up, one of the reasons they get in trouble is in early 2020, they buy 4 billion plus of Chinese real estate and then COVID hits and the real estate is probably what the ink is dry on the parchment and the real estate's probably down 90% by the time. And it just it kind of reminds me of AT&T, right? And now we're saying, "Hey, they've got these new guys, these outsiders." And I'm like, "Yeah, they're going to sell a lot of stuff." And I would not be surprised if five years from now Dom's on and we're saying, "Hey, sold a lot of stuff and they they moved into AI at the absolute top of the market and it was bad or something, you know." >> Yeah. I mean, I would say that I think the, as you say, very poorly timed uh acquisition of a big parcel of land in Shanghai in 2020. I think that could well have been the sort of straw that broke the camel's back and convinced them, okay, we've not done our track record was not very good over the last 10 years. bring in outsiders will really radically change the strategy. That's the optimistic take. One of the things that struck me reading their annual report is annual report to annual report all this this huge focus on our goal our northstar is fiveyear what's the exact quote they say it's fiveyear superior is the quote superior fiveyear total shareholder returns and it is kind of funny because when you read the annual report their fiveyear return is uh is negative and you know indexes they don't comp to an index but indexes are not negative over the past five years but I just wanted to ask you about that like when they talk about that and when they talk we we can talk shareholdings and stuff in a second but when they talk about like like how do you think about when they're saying we want to drive superior 5year returns how do you think they're thinking about it >> well I think it means an asset like strategy so you know I talked a bit about Hong Kong land and what they want to do um one of the smallest but you know most high-profile parts of the group is they own the Mandarin Oriental chain of hotels. So they're again they've talked about moving towards a management model rather than you know owning the real estate and owning and operating and they've already sold a couple of hotels. Uh they sold uh Washington and Paris uh one of which uh they als they they retain the management contract. So you know that that's sort of indicative of of uh what they want to do. Um so uh yeah as I say as you know an asset like model and then also simplification the the so in the third bucket you know the other bucket um the the biggest chunk of that is is a retail group called dairy farm international. So historically that was Hong Kong as well as Singapore, uh Malaysia, they had grocery stores in in Indonesia, the Philippines, and all of those have gone now. Uh they've all been sold. So it's it's again much more simple group. It's it's basically basically just Hong Kong. They run the IKEA franchise in a few countries. Um and they're the yeah the 7-Eleven operator across a few jurisdictions. So it's it's it's radically simpler than it was. Um uh has very little debt now. And so you know that both those entities so dairy farmer is owned 78% by the group and Mandarin Oriental which they've been buying they own 88%. So very easily they could you know privatize those assets. >> I I did not realize Mandarin Oriental was publicly traded and obviously they own 88% so publicly traded is kind of a loose thing. But I do think that's interesting. like that is a place where you could see I could see a family hold co with a long-term vision really creating something because for those who don't know Mandarin Oriental is like it I'm not staying at 1500 a night hotels but I believe it's about the highest end hotel chain out there and they're building it 40 units like you could imagine how a every new unit they build and obviously there's a cap on that right they're not going to build I love Lafayette Louisiana but they're not going to build a Mandarin oriental in Lafayette Louisiana there's a cap on just how many they can have. But every new trophy mandarin that you build in Trophy City kind of adds to the network. And you have to imagine if and when they ever put that up for sale, every large uh hotel group is going that's going to be a, you know, trophy property that a Marriott would bid out the nose for because they want access to that customer. It's a hugely synergistic piece of their business. the CEO probably wants to stay at the Mandarin instead of the Weston when he's traveling around if you're being completely honest with everyone. So, I I think that's a really interesting example of a place where a family hold co can uh maybe take a longer term view and create value. Anything you want to say there or add on to that? >> Yeah, I mean uh luxury hotels are one of those things that you have to take off the list if you're a mega billionaire. you know, you want to own a sports franchise, you know, massive jet and you want to own a chain of hotels or or, you know, one flagship hotel in New York or something. And so, >> it's funny you say that. They they really do. And I get why you'd want to own a sports team. I get why you'd want to own a jet. I don't know why you'd want to own the hotel. Like, why why do you want to own a luxury hotel? What's the point? >> Well, it's the VIP treatment that you that you get. You know, there's no better directorship than being on the board of a of a high-cost airline. um because you get the VIP treatment. Um but so on the subject of hotels so it's quite interesting you know you own you know you own a sorry a let's say you own a commercial tower office tower you get to hold that as investment property and so you you get to basically mark to market every year you get to you know use a cap rate and uh and market to market every year whereas hotels you know it's a very similar asset uh but it's it's the way it's held it's depreciating asset. Um, and so it it's kind of disadvantageous to run an office a building as a as a hotel as opposed to an office. And so, you know, Mandarin Oriental owns a lot of its its land and property assets. And actually, so they had an old hotel in Hong Kong and they decided to redevelop that uh as as an office. And they they've just announced this week that they're in talks to sell uh about half of the office space to to Alibaba for $900 million. Uh which compares against the $2.6 billion market cap for Mandre and Oriental. So very material. Um so there's a lot of there's a lot of you know value in that uh in those property assets. >> It's one of those things. I mean, it's not unheard of for hotel chains to trade well below their real estate value, but it when do you realize it and do you really trust it? Let let me ask, so just on the five-year shareholder returns, you know, again, I I I completely understand the family hold code and everything, but to me, they trade at a NAV discount and they clearly believe their NAV is way way higher than the share price. You know, I look at this say, why aren't they buying back stock? the the stock buyback is token at best and basically zero I if we're being honest with each other. >> They do pay the progressive dividend and everything, but if they're saying, "Hey, we want to be a we want to deliver superior 5year returns." There's nothing they could do that would deliver that better than buying back stock at under just market NAV. Forget their NAV. Why do you think they aren't doing that? Because to me that it's just like again we're dancing around elephant in the room. I'm worried about empire building. It seems like a red flag here. >> Yeah, it's a very good question. I mean, one obvious answer could be that, as I say, the CEO hasn't actually sat at his desk yet. Uh, he he joins first of December. So, that presumably is something that's on on the to-do list to be a bit more aggressive about buying back the stock. I mean, as I mentioned with Andrew and Orento, they have been selectively increasing um their stakes in in some of the main entities. The biggest entity by market cap is is is kind of it's an intermediate holding company called Jardian Cycle and Carriage. Uh and that holds the stake in Asher International which is the Indonesian conglomerate and they own 85% of that. Uh so which I believe they've increased in recent years. So the the one of the more obvious things that I think they're likely to do in the next couple of years is to to buy out the the 15% minority in cycling carriage uh which again simplifies the group allows more of the the dividends to acrew up to the top. Let me they there's some interesting language in the annual report about uh border enumeration incentive line everything. They've got the 1947 trust. Can you explain how the 1947 trust works to me? Uh no, the short answer is no. So the 1947 Truss is a uh one of the main family vehicles, but there are two family vehicles which own uh just over 25% of the company. Um but beyond that, I I don't I don't really know how decisions are made within the family uh and and exactly how the trust works. >> No, that's completely okay. There's just there's this weird thing where and again it made my head spin when I was reading it. The 1947 trust which again owns I think it's 8% of the company maybe 10 I can't remember the exact number uh is controlled by the company and pays out dividends and they use that dividend stream to in part pay the directors who are then required to use some of that dividend stream money to buy shares on the open market. But the executive chairman, the the family, the fifth generation family member we was talking about is the one who controls how much of the 1947 dividend goes to the directors. And I've just never seen anything like it before. And it strikes me as really weird because you could say, hey, huge alignment, right? Uh they're getting dividends that they're forced to plow back into the stock. Huge alignment. On the other hand, you could say huge misalignment. A, they want to keep paying a dividend because that's how they're getting paid from the 1947 trust. And B, because the executive chairman decides how much of the dividends go to the directors, they need to stay on his good side no matter what. Right? So, if he's walking around wearing no clothes, they're going to say, "Hey, great suit, sir." Because they kind of serve and get the dividends at his pleasure. Like, that was my understanding. I I could have been wrong. It was very confusing. I' never seen anything like it before, but that's uh that's kind of why I was asking about it. Yeah, >> I mean it's kind of how you might run a private family entity, right? You would you you it's as the owner of of the business, as the family owner, it's it's kind of your discretion to decide how much equity somebody gets, how much they get paid. It's kind of like a, you know, a private uh profit share. I would I would see it as >> I I think you're exactly right. It's just the way it was structured was a little strange to me. I've never seen before. Let me ask one last thing and then uh we kind of wrap it up. Again, holds are difficult to talk about because like hey, NAV is 100. It trades at 80. Should it tra should it trade at 90? Is NAV actually 100 or 150? But it's tough to like really ask why Jardine Matson, right? You laid out 15% discount to to market NAV. You probably think NAV is I'm just going to put words in your mouth 25% understated. So that 16% is closer to 35 or 40%. But you know, I mentioned Exor. I think Exor based on their numbers strings it half of half or under half of IA $35 per share of stock price $40 per share in cash plus MGM stock plus other stuff that's probably worth another 10 $10 per share. So that's trading at if I'm doing that math in my head right 70% of NAV. Um Persian Square there's a a popular one 27 and a half% discount to NAV. Obviously there's fee issues, control issues and everything but that's what comes with Hold Coast. I just listed three. We could probably find 20 more. Why why Jardine Matson over any of these other kind of discounted hold codes that I just walked through? >> Well, I think because of the you know the delta the change. I mean I mean you know this business this industry is the job is is filtering and so anyone who's looked at Johnny Mass over the past 30 years would have concluded as I did a decade ago you know horrible government governance you know past uh and it takes a long time for people to really believe um when something has fundamentally changed um and I you know I see lots of evidence that that that change is happening firstly And secondly, there's there's just so much uh lowhanging fruit. I mean, we haven't even got into Astra International, which again is the Indonesian conglomerate. I mean, I I was looking at it and I I believe I found 10 publicly listed subsidiaries of Astra, you know, which itself is a subsidiary of a subsidiary. So, there's there's a lot a lot you can do um to to restructure, simplify, and realize value. I mean go go go with that. Anything in particular? Obviously I was just focused mainly on the hold go the nav that but anything in particular you want to say about that one or that you think's particularly interesting like they've got I think if I remember correctly that's a third of NAV. Is there a reason to believe that NAV is understated or there's going to be some inflection point there or anything? >> Well they've they've really said very little about Astra International. Um, and I think one of the reasons for that is that again it's the largest business in Indonesia by revenue. Um, and so in some ways it's almost like a quasi state company. Uh, and so they have to be a little sensitive uh, about the changes they make. Uh, I understand that BCG is in there, you know, doing some sort of strategic review. Um, and I just find it hard to believe that with all that's going on in all the other group companies, they will, you know, they there'll be nothing done at Astra International. Um, as I say, it's incredibly complex with 10 codes within the business. The main the main entity of Astra is it's it's the largest dealer manufacturing dealer of cars in Indonesia. So um well over half they're the exclusive uh distributor of Toyota. Um so well over half cars sold in Indonesia which is a $250 million sorry $250 million population country. Uh and I think 80% of all uh you know two wheel two wheel motorbikes are sold and financed by this this entity Astra. So it's it's a massive business um and has and again is a sprawling conglomerate. So there's there's a lot that you can potentially do and and Indonesia is a very unpopular place at the moment with equity investors. >> I'm just laughing because with uh 10 listed subs and the complexity of that we we can do another a followup podcast on the whole at Astra International. It reminds me of a little bit of Voyet in uh France where you just get hold discounts on hold co discounts and one day then one. Cool. Well, look, I I think we've gone through all my questions. I just just want Is there any asset that uh we covered obviously we could go deeper into them, but I I think this more hold, but any astra asset that we haven't talked about or that we kind of glanced over that you think is just worth highlighting or anything else that I kind of should be asking about Jardine Matson that I haven't hit on? >> Not really. I mean yeah you can get into the weeds and there are so many you can find more and more businesses. So for example they own there in Asia Schindler which is the you know giant elevator manufacturer. Charlie Matson is their JV partner. They run a thousand Pizza Hut and KFC locations um mostly in you know across Asia. Um, so there's just once you peel back the layers, there's so many businesses and for me given, you know, the evidence of change that that all of that creates optionality. So that's >> is KFC still like kind of a dominant brand over in uh Asia? >> Uh, it's it's generally pretty yeah very successful. >> Okay. I just remember when I was, you know, 10 years ago when I was up and coming, everybody talked about KFC over in China. It's nothing like KFC over here. like it is the place. It is the hot, you know, it's upscale. It's where everybody wants to eat. I I wasn't sure if that had changed at all in the past 10 years. >> Yeah, I think it still continues to do to do very well. >> Cool. Okay. Well, this has been great. Look, Dom has a great write up on his substack. I'll include a link in the show notes if you want to go there. And it includes uh you know, as Dom mentioned at the top 200 years of history of Jardian Matson. He's been following it for 12 years, had a sell on it. uh you know the stock again I laugh at their annual report because we wouldn't deliver superior fiveyear returns and uh 10 year return negative sens but uh it may you know did it work for them no but it might just work for us now uh but do George from Ka this has been great thanks so much and looking forward to chatting soon thanks a lot >> a quick disclaimer nothing on this podcast should be considered investment advice guests or the hosts may have positions in any of the stocks mentioned during this podcast please do your own work and consult a financial adviser. Thanks.
Unlocking Jardine Matheson's holdco value with Cayucos Capital's Dom St George
Summary
Transcript
You're about to listen to the yet another value podcast. Uh today's episode is on Jardine Matson. Jardine Matson is a whole co trading at the sum of trading at the some of the parts discount. Uh our our guest Don from Kaio Capital has done you know he's got a 200y year history here. It's really interesting. It's an interesting discussion. And you know I think the thing in the back of my mind is 10 years ago when I first started out I I I used to love hold codes. It was all I did. You know, you take a company, hey, $100 per share of like tangible value trading with, you know, 50 of cash and 50 of stocks and trading for 80. Awesome. And over the years, I have just I mean, the history of hold codes over the past 10 years has been awful. And that's, you know, hold codes with shady management teams have been terrible, too. But also, a lot of the greats who had hold codes, they have done really, really poorly. You know, I'm looking at you IA, I'm looking at you, Liberty, uh, several, several others. They've really underperformed. So, I've gotten really skeptical of hold codes over the past 10 years. I I think you'll hear that in the conversation. I think it makes for interesting divergence of style. So, we're going to get there in one second, but uh you know, obviously international stocks. So, full disclaimer, extra risk in international stocks. See our disclaimer at the end of the podcast, but we're going to get to the podcast in one second. First, a word from our sponsors. This podcast is sponsored by AlphaSense. Look, AlphaSense has been a longtime sponsor of the podcast. I am a super happy user of the AlphaSense products. everything ranging from their AI platform for investing, but particularly the expert calls that I use on a daily basis to look at companies and kind of see what industry insiders who are doing more than I'm doing, which is just being a dummy and reading the publicly traded filings and reading trade. Industry insiders are telling me about how business is actually working on the inside and how they're viewing trends and everything inside it. So, super huge fan of the platform. If you're interested, AlphaSense was kind enough. They just sponsored a free webinar with me and a former at Mastercard where we talk about the future of finance. In particular, we're talking about stable coins and their effect on the overall economy, how they could impact remittances, how they could impact particularly payment networks because he's a former at Mastercard. I think it's a really fascinating interview. I think you're going to, whether you're a journalist or a specialist who focuses on it, I think you're going to learn a lot listening to it. And if you listen to it, I think you're going to, you know, see why I think expert call networks are kind of the most revolutionary product for investing, for journalists, for specialists, for everything to come along in the past 10 to 15 years. So, if you're interested, I'll include a link in the show notes to go check out that webinar. But, uh, thank you to Officer for sponsoring this podcast. And now on to the podcast. All right. Hello. Welcome to the yet another value podcast. I'm your host, Andrew Walker. With me today, I'm happy to have on for the first time Don St. George from Kyoko's Capital. Dom, how's it going? >> Good, thanks. It's a real pleasure to be here. >> All right. I'm super excited. Uh, before we start talking, just remind everyone on this podcast, nothing on this podcast is investing advice. Always true, but we're talking about an international stock today, so that carries extra risk. Consider that. See the full disclaimer at the end of the podcast. Uh, Dom, the the reason you're hopping on, you did a great write up on your Substack. I'll include a link in the show notes for anyone who wants to go read the full thing, but it's on Jardine Matson. The ticker there is JM, but it does trade international, so people will have to kind of go find that. You've been covering, I thought what was so cool is twothirds of the way through your write up, you mentioned, hey, I've been following this stock since 2012, I think. So, you've been following it for a long time, but I I will just pause there and ask, what is Jardine Mat and why are they so interesting? >> Yeah, thank you. So um I love to delve into the ancient history of companies and so I can't get going without talking about the founding story here because it's just so fascinating. So most people will be aware of uh the East India Company uh which in the 19th century had a monopoly on trade with India the British East India Company. Um and fewer maybe will be aware that uh one of their main exports out of India was opium. Um but the East India >> I think if you've ever watched a TV show with like a little historical fiction I think I think they make it pretty clear what was coming out of the East India Company to be honest with you. >> Okay. Okay. Um, so may maybe more well known than I thought, but um, so they didn't want to actually send their people into China directly. They didn't want to ruffle too many feathers. So they left the actual uh, import of opium into China uh, to enterprising traders such as Jardine and Matson. And William Jardian in particular made so much money from this trade as you can imagine um that he used that wealth and also his his seat in the House of Lords which is similar to the uh Senate in the UK to uh lobby for the end of the of the monopoly that the East India Company had. And eventually he was successful and so you know the East India Company tried to kind of limit the flow of of of opium. Uh whereas when that monopoly ended you had a complete freeforall of uh of opium coming into China and that's what forced or made China decide to to to ban opium outright. And that was so uh you know deletarious to to the British Empire that they went to war with China uh over that ban. And it was the the subsequent treaty after that war that led to uh the creation of Hong Kong as a as a British colony. Um so basically the history of this company uh led in effect to the to the creation of Hong Kong as a British colony. Um so let let's uh fast forward a couple of centuries. Um and Johnny Matson really for context I describe it as a perennial value stock. Um and you know anyone with a valuation value inclination in Asia probably sort of groaned when you know they they saw somebody pitching the stock because it's been cheap forever. And the reason for that is that the group essentially made a uh a levered uh property bet in the mid 80s which turned out to be very poorly timed. came months before the British and the Chinese announced the eventual handover of of Hong Kong back to China and that led to uh you know a property slump uh and the company you know started to be circled by uh wouldbe would be suitors. And so in order to avoid takeover, the the group basically instituted a very complex um crossolding structure where they had two holding entities each with controlling shareholding in the other which essentially made it impervious to to outside influence. And so anyone who's looked at this over the years, as you mentioned, I first looked at it in 2012. It's always traded at a large discount to NAV or some of the parts, but ultimately, who cares? Um, but um there have been some quite substantial um changes um in recent years. So it seems that Ben Kzich who's the fifth generation of the family has has sort of consolidated control over the group and he's done a number of very interesting things. The first thing is to uh unwind the crossolding structure. So there's one clear um uh holding company Jardi Matson. Uh secondly, there have been a number of disposals uh that the group has met across the group uh which I add up to uh around $4 billion which is pretty substantial relative to what is today an $18 billion uh market cap. Um and so the group has been very the third thing is that the group has been very insular historically. you know, they had a a graduate scheme which trained train trained people up and basically all of the the the senior executives were were lifers. Um, and the thing that really caught my attention was that they announced earlier this year that uh they were bringing in a new CEO, a gentleman named Lincoln Pan, who was the and is the co-head of private equity at Pag Group, which is one of the largest private equity groups in Asia. And when I started to dig some more, I realized it it wasn't just him. Uh they have a number of senior sort of big swingers um from from private equity on the board. So there's a a gentleman from KKR and a lady from Carlilele. Um, if you look at who who's now heading up the China business, uh, it's it's a guy called Steve Sun who was co-head of China for TPG and his number two was um was, you know, a senior investment banker for I think the head of Asia for for for Bank of America, Meil Lynch. So, it's and and just to reiterate, so Lincoln Pan actually starts on the 1 of December uh, in a couple of months time. So despite the $4 billion of of disposals they've already done, it's quite clear there's there's a lot more to come um and and they've they've sort of given us a road map for for some of that um which I can get more into. >> That's great. So let's just pause there. Okay. So you've got a company with literally centuries of history, right? And what you're saying is, hey, Fifth Generation kind of comes in. They've been there for a while, but they've really just cemented their control. hired a bunch of outsiders with deal experience who are coming in and you think the path from here is great. So let's just start normally ask why is this an opportunity but I think you kind of laid out I think the place to start would be hey as you and I are speaking here today you know frame the upside for me the stock is trading if I just pull this up the stock is trading at $63 I guess that's HKD but it's trading at US >> it is okay it's trading for 63ish per share what does NAV look like here what does value look like here >> yeah So again, I so I've done a some of the parts uh almost all of the entities of the group are publicly listed, so it's pretty easy to do. And so uh I get to basically a 16% discount to any NAV, which is not very exciting in and of itself. It's more all of the potential corporate activity that could happen. >> Then let's so we could go through the different pieces of the NAB. I thought one of the really interesting pieces is they've got uh Hong Kong land and they there's the market price and then they say, "Hey, if you look, these are trophy assets. We think the real value of them is like 2x the market price." I thought that was interesting. We can talk about all those pieces, but as you said, one of the questions I'm going to come back to is, "Hey, 16% discount's an app. That's not that interesting." At Hulkos, what is the go forward path that makes you so excited? You know, what is the go forward path? Because if you told me 16% discount, they're liquidating tomorrow. I'd say, "Oh, that's pretty cool. 16% discount." like what are they going to do to grown nav or that we're going to kind of you know as I like to say what are they going to do that we're going to capture a riskadjusted alpha opportunity by buying the stock at a 16% discount to a >> yeah so I mean I think it would be useful to to start getting into the into the businesses um and as you said so very roughly you got one-third Hong Kong landird Astra International which is the largest uh business in Indonesia by revenue very broad conglomerate and then one-third everything else. Um, and so starting with Hong Kong Land, uh, it's it's about a 13.5 billion dollar uh, market cap today and they own 53% of it, but they would tell you um, the net ass net value of their assets is actually 35 billion. Um, and so, you know, what's the differential? I mean, one, they're a little bit aggressive in terms of the cap rates they use. So the biggest portion of it about twothirds of it are Hong Kong office. Hong Kong office is about half of Hong Kong land and then a little bit more comes from Hong Kong malls and they use a 3ish% cap rate um on on those assets. Um so you could say well that's a little bit aggressive. But one thing that one data point that is pretty quite interesting is that they actually sold um one of their space they sold nine floors of of one of their prime Hong Kong towers uh earlier this year to uh the Hong Kong stock exchange at roughly you know a similar cap rate cap rate. Uh and I also think that's quite symbolic because you know as I say it's a real it's basically the jewel in the crown. it's it's the asset that that they almost went bust buying in the 80s. So, it kind of demonstrates to me that um you know, they're willing to sell anything or and everything. Um and so again, $ 13 and half billion dollar market cap. They've announced that they want to do 10 billion up to 10 billion dollars of capital return by 2035. Now that's quite a long lead time obviously but it's because most of it comes from basically winding down uh the uh the development assets that they have you know they're building office towers and malls uh mostly in in China let's so when we talk about the 16% discount to NAB that Jardian Athens trades for right we're talking about on Hong Kong land which is about 33% of their using the market price to get They're saying, "Hey, we think this is worth double, more than double the market price." Who do you think's right? Do you think they're right or do you think the market's right here? >> Well, I mean, I think it's somewhere in the middle. Um, I don't want to say that the the market is wrong. Um, but I think the reason Well, I think the reason it's interesting is that they are actually making steps to realize that NAV at close to their cap rate. Um, What? Because I what's interesting here is if I just do the math in my head, right? If they've got $33ish of their $100 per share value, if I'm just kind of doing that as a nav, a at market price, if you say it's they think it's that 33 is worth 66, you think it's somewhere in the middle, so it's worth 50, that takes your NAV discount from 17% to about 33% just on on that alone. I I guess my push back would be like, look, I've done a lot of these hold cove investing. When I first started, like all I was do is hold coast to my detriment, right? I I just love these things and I was like, "Oh, these smart families that control." Over time, I've gotten really disillusioned with them. And one of the reasons I gotten disillusioned with them is every time I heard had a control hold code that said, "Hey, we've got this crown jewel. Uh, we think it's worth way more than anyone getting." Traditionally, it was actually really bad. And it was bad in one of two reasons. A, they way overvalued it. Or B, they way overvalued it. And because the market was trading at 33 and they thought it was worth 66, they plowed more money in it. And then when the market turned out to be right, they had wasted all the money. So I I guess when I look at the them saying, "Hey, Crown Jewel worth these low cap rates," like I I get really worried that it's got the traditional disillusionment of hold codes, if that makes sense. >> Yeah. I mean, I think you're totally right. And and actually, you know, I I I'm always very hesitate hesitant to describe myself as a value investor. And the reason for that is similarly I've discovered that um a lot of the mechanisms to recognize value that exist in the US let's you know activists for example private equity directors with statutory responsibilities to minorities um even bankruptcy you know transferring assets from bad owners to good a lot of these uh mechanisms they just don't exist or they exist to a lesser extent uh in emerging markets or or even internationally. So you do have to be very skeptical. Um and so you know alignment with with the the key decision makers is is very important. Um but I think there's there's just so much evidence here that they are shifting the portfolio from >> Great. Let's go to that then. Right. I I I think the crux of your thesis is, hey, you have this company where the fifth generation, even though they've been there for a while, they really just cemented control, right? The fourth generation, as you say in your write up, uh I think you've got science progressives by funerals, and you say that's how family hold codes work, too, right? The fifth generation really just took full control because the fourth generation died out. And you say, "Hey, they're bringing in these heavy hitters to be the next CEOs, right? They're going to bring in private equity firm." And I get that. That is exciting. and you say, "Hey, they're they're only bringing in the private equity uh heavy hitters for one reason. The private equity heavy hitters are going to be on the other side of investment bankers and other private equity firms and deals." And I think you alluded to that being asset sales and capital returns is kind of where your mind. That's not where my mind goes. Like this is a fifth generation family company. I don't doubt they're going to sell some, but my you know what you're kind of suggesting is a windup. And when I see them hiring all the, you know, a former BFA, head of private equity, what I see is, hey, we're going to go do a lot of investing. And yes, maybe we sell the old stuff, but we're going to be full speed ahead building out a family hold code. This is going to be a conglomerate. And I'm worried that's the direction they go because if that's the direction, 16% discounts. Now, maybe they hit home run after home run. I don't know. I think the base rate is when you're doing a family hold co investing the base rate is the the investments are done with a quote unquote long-term time horizon and that's quote unquote long-term time horizon because they all underperform and you say hey one year one year is going to be our year. So I threw a lot out there but what do you kind of think about just like that go forward because I think that's where you think the catalyst is. >> Yeah I mean I to be clear I don't think this is going to be wound up and the whole thing's be taken private. I just I'm arguing for simplification and there's so much lowhanging fruit to achieve that simplification and I think I think you are right. So let's get if we get into the people who they've hired to run Hong Kong land. So again outsiders um the the CEO who's hired also a CIO chief investment officer both of them came from Maple Tree which is the real estate subsidiary of Tomas the Singapore sovereign wealth fund one of the biggest insttors in Asia and interestingly they both before that were at Goldman Sachs and at Goldman they did a lot of the REIT uh IPOs in Asia um and if you look at their presentation they They are saying we're going to go from about $40 billion of assets under management to a hundred billion dollars in part by managing third party capital. So they become they're going to become in part more of a an asset manager as opposed to you know just owning 100% of everything and and you know trying to generate returns that way. So that it's become the plan longterm has to become more of a a fee business and that you know the people they put in charge are indicative of that. >> I I mean that is certainly interesting but it's a lot of money to raise and you have to hire a whole team and build out like >> uh let me ask two questions base rate. Have you seen family hold co successfully build asset management build businesses like they're kind of suggesting here? >> Um that's a good question. Um I mean I have seen um family companies raise third party minority stakes in in group companies. Um generally for generally for exor is going to buy the economist they buy 80% and they bring in co-invest for 20% right but that's more co-invest like they're talking about going from 40 to 100 billion and if they could raise 60 let's just say it's 60 billion of outside capital at one and 10 I mean you would put a a feast you would put a multiple on that that would be worth quite a bit of money that would cover a lot of overhead here so I'm interested you know it I I can't think of any examples of one having done that. Doesn't mean it can't be done, but if they could, and it seems like that that that is interesting. I just can't think of one that's done that. >> Yeah. Um I mean, I think it's it's the direction of travel. I mean, whether they're going to get to 100 billion, I mean, that's that's quite an aspirational thing. But I I do think if the more they can do to demonstrate that the 3% number, you know, 3% cap rate they're using is actually a number that people are willing to pay, third parties are willing to pay, I think that's all, you know, that's all positive. And again, you know, the $10 billion they want to return from Hong Kong land by 2035 is a slow pace, but you know, just this month, they announced uh $660 million sale of a Singapore Malaysia focused um residential developer. So, you know, it's a business, you know, I didn't really know even existed, uh that they sort of plucked out of their portfolio and and and put a $660 million number on it. Not bad when uh you don't even know there's something in there and it return. Let me ask this question a different way. Uh this is a hold co fifth generation. He's hiring a bunch of private equity people. You know, forget what I said about third party. Uh you've done a lot of hold codes. I've looked at a lot of hold codes. Can you think of family controlledish hold that have transitioned to kind of the professional group? you know, they're hiring a private equity firm, they're hiring former bankers. Can you think of one that has done that and kind of done well? >> Well, I mean, you mentioned Exor. I think that would that would definitely be up there as as one of the best. Um, >> you know, it's funny you mentioned Exor because I'll just transition to X. You talk about the 16% discount. Exor has done quite well in terms of NAV and compounding. I I looked at XOR when I was prepping for this. Exor NAV they painting it as 180 per share and they're trading at 80 80 euros per share. So I think the results have been good. I I I haven't followed them as closely as you used to but I I I would just say like they're trading at 40% of NAV. It looks like if that's right like if that's a good case here, you know, careful what you wish for, I guess. >> Yeah. I mean the the market in general does not like conglomerates. Um, I think that's absolutely clear. I mean, there's there's a there's a family conglomerate in in South America that have have made phenomenal decisions long term. >> Is this a process? >> Uh, no, this is it's called Kienka. Uh, the it's quite a small free float. Um, but it's a Chile based group and they've they've made some fantastic decisions. But again, you're right, the discount to NAV is is I haven't looked at it very recently, but it's kind of 50 60%. Um, so that yeah, the market doesn't give businesses credit. Um, but you know, every dollar that's that's returned to shareholders, you know, I I value that dollar in my pocket at, you know, at a dollar. So, um, if if a lot of it comes back to us, then, you know, that that can lead to to good returns. >> I I actually think what you what you just said is what I was kind of trying to strive at as my risk factor, right? To me, a family hold co a a hold co at a discount is great if they're going to return the capital, right? Like a liquidation windown. I I I think what I'm worried about here is okay, Hong Kong land, right? They sell and they realize it's trading at a 6% cap. They think it's worth three. They realize at a four, four and a half, four, whatever it is. Like what I'm worried about is because they hired all these PE guys. The answer is not going to be take that money from Hong Kong land and return it to Jardy Mat shareholders. Now, Hong Kong land might return it, but once it gets to the jingy mass levels, I think you've got these PE guys who are going to say, "All right, it's time to go buy something, right?" And the history of that is poor. And I worry I again I haven't followed exor closely in a while but I kind of worry you go get the exor treatment or you get the South American treatment you're talking about where hey they do great sales they go plowed into new businesses and the stock just lags and it just keeps trading under NAB and you have just kind of a perennial underperformer I guess would be where I'm trying to drive my worry to. Yeah, I mean it's certainly possible and uh you know the to be clear the recent history of the investments that this group has made over the past decade have been very poor. Um and I guess one of the things that's interesting to me is a big part of those that $4 billion of disposals they've done in the past four years that's unwinding past acquisition. So it seems very much like they're in sell mode rather than buy mode. But it is possible that once this this sort of private equity team is assembled, you know, they're clearing the decks in advance of that and then they will go out and do more M&A. I mean, I think they know that the market will not look uh fondly on on on M&A, but they you're right, they may not especially care. >> I was Are you familiar with Liberty Media at all? >> Some Yeah. >> I I was reading John Malone's book. We just did our book club on it. Uh, and the thing I was laughing at is every decade AT&T can be trusted to make a terrible acquisition and then unwind it. But you know, when you're saying Jordan Matson, the one of the reasons they get into the complex hold structure is in the 80s they buy real estate at like the height of the market, right? And it takes them almost 40 years to unwind that evil. And then in 2020, as you say in your write up, one of the reasons they get in trouble is in early 2020, they buy 4 billion plus of Chinese real estate and then COVID hits and the real estate is probably what the ink is dry on the parchment and the real estate's probably down 90% by the time. And it just it kind of reminds me of AT&T, right? And now we're saying, "Hey, they've got these new guys, these outsiders." And I'm like, "Yeah, they're going to sell a lot of stuff." And I would not be surprised if five years from now Dom's on and we're saying, "Hey, sold a lot of stuff and they they moved into AI at the absolute top of the market and it was bad or something, you know." >> Yeah. I mean, I would say that I think the, as you say, very poorly timed uh acquisition of a big parcel of land in Shanghai in 2020. I think that could well have been the sort of straw that broke the camel's back and convinced them, okay, we've not done our track record was not very good over the last 10 years. bring in outsiders will really radically change the strategy. That's the optimistic take. One of the things that struck me reading their annual report is annual report to annual report all this this huge focus on our goal our northstar is fiveyear what's the exact quote they say it's fiveyear superior is the quote superior fiveyear total shareholder returns and it is kind of funny because when you read the annual report their fiveyear return is uh is negative and you know indexes they don't comp to an index but indexes are not negative over the past five years but I just wanted to ask you about that like when they talk about that and when they talk we we can talk shareholdings and stuff in a second but when they talk about like like how do you think about when they're saying we want to drive superior 5year returns how do you think they're thinking about it >> well I think it means an asset like strategy so you know I talked a bit about Hong Kong land and what they want to do um one of the smallest but you know most high-profile parts of the group is they own the Mandarin Oriental chain of hotels. So they're again they've talked about moving towards a management model rather than you know owning the real estate and owning and operating and they've already sold a couple of hotels. Uh they sold uh Washington and Paris uh one of which uh they als they they retain the management contract. So you know that that's sort of indicative of of uh what they want to do. Um so uh yeah as I say as you know an asset like model and then also simplification the the so in the third bucket you know the other bucket um the the biggest chunk of that is is a retail group called dairy farm international. So historically that was Hong Kong as well as Singapore, uh Malaysia, they had grocery stores in in Indonesia, the Philippines, and all of those have gone now. Uh they've all been sold. So it's it's again much more simple group. It's it's basically basically just Hong Kong. They run the IKEA franchise in a few countries. Um and they're the yeah the 7-Eleven operator across a few jurisdictions. So it's it's it's radically simpler than it was. Um uh has very little debt now. And so you know that both those entities so dairy farmer is owned 78% by the group and Mandarin Oriental which they've been buying they own 88%. So very easily they could you know privatize those assets. >> I I did not realize Mandarin Oriental was publicly traded and obviously they own 88% so publicly traded is kind of a loose thing. But I do think that's interesting. like that is a place where you could see I could see a family hold co with a long-term vision really creating something because for those who don't know Mandarin Oriental is like it I'm not staying at 1500 a night hotels but I believe it's about the highest end hotel chain out there and they're building it 40 units like you could imagine how a every new unit they build and obviously there's a cap on that right they're not going to build I love Lafayette Louisiana but they're not going to build a Mandarin oriental in Lafayette Louisiana there's a cap on just how many they can have. But every new trophy mandarin that you build in Trophy City kind of adds to the network. And you have to imagine if and when they ever put that up for sale, every large uh hotel group is going that's going to be a, you know, trophy property that a Marriott would bid out the nose for because they want access to that customer. It's a hugely synergistic piece of their business. the CEO probably wants to stay at the Mandarin instead of the Weston when he's traveling around if you're being completely honest with everyone. So, I I think that's a really interesting example of a place where a family hold co can uh maybe take a longer term view and create value. Anything you want to say there or add on to that? >> Yeah, I mean uh luxury hotels are one of those things that you have to take off the list if you're a mega billionaire. you know, you want to own a sports franchise, you know, massive jet and you want to own a chain of hotels or or, you know, one flagship hotel in New York or something. And so, >> it's funny you say that. They they really do. And I get why you'd want to own a sports team. I get why you'd want to own a jet. I don't know why you'd want to own the hotel. Like, why why do you want to own a luxury hotel? What's the point? >> Well, it's the VIP treatment that you that you get. You know, there's no better directorship than being on the board of a of a high-cost airline. um because you get the VIP treatment. Um but so on the subject of hotels so it's quite interesting you know you own you know you own a sorry a let's say you own a commercial tower office tower you get to hold that as investment property and so you you get to basically mark to market every year you get to you know use a cap rate and uh and market to market every year whereas hotels you know it's a very similar asset uh but it's it's the way it's held it's depreciating asset. Um, and so it it's kind of disadvantageous to run an office a building as a as a hotel as opposed to an office. And so, you know, Mandarin Oriental owns a lot of its its land and property assets. And actually, so they had an old hotel in Hong Kong and they decided to redevelop that uh as as an office. And they they've just announced this week that they're in talks to sell uh about half of the office space to to Alibaba for $900 million. Uh which compares against the $2.6 billion market cap for Mandre and Oriental. So very material. Um so there's a lot of there's a lot of you know value in that uh in those property assets. >> It's one of those things. I mean, it's not unheard of for hotel chains to trade well below their real estate value, but it when do you realize it and do you really trust it? Let let me ask, so just on the five-year shareholder returns, you know, again, I I I completely understand the family hold code and everything, but to me, they trade at a NAV discount and they clearly believe their NAV is way way higher than the share price. You know, I look at this say, why aren't they buying back stock? the the stock buyback is token at best and basically zero I if we're being honest with each other. >> They do pay the progressive dividend and everything, but if they're saying, "Hey, we want to be a we want to deliver superior 5year returns." There's nothing they could do that would deliver that better than buying back stock at under just market NAV. Forget their NAV. Why do you think they aren't doing that? Because to me that it's just like again we're dancing around elephant in the room. I'm worried about empire building. It seems like a red flag here. >> Yeah, it's a very good question. I mean, one obvious answer could be that, as I say, the CEO hasn't actually sat at his desk yet. Uh, he he joins first of December. So, that presumably is something that's on on the to-do list to be a bit more aggressive about buying back the stock. I mean, as I mentioned with Andrew and Orento, they have been selectively increasing um their stakes in in some of the main entities. The biggest entity by market cap is is is kind of it's an intermediate holding company called Jardian Cycle and Carriage. Uh and that holds the stake in Asher International which is the Indonesian conglomerate and they own 85% of that. Uh so which I believe they've increased in recent years. So the the one of the more obvious things that I think they're likely to do in the next couple of years is to to buy out the the 15% minority in cycling carriage uh which again simplifies the group allows more of the the dividends to acrew up to the top. Let me they there's some interesting language in the annual report about uh border enumeration incentive line everything. They've got the 1947 trust. Can you explain how the 1947 trust works to me? Uh no, the short answer is no. So the 1947 Truss is a uh one of the main family vehicles, but there are two family vehicles which own uh just over 25% of the company. Um but beyond that, I I don't I don't really know how decisions are made within the family uh and and exactly how the trust works. >> No, that's completely okay. There's just there's this weird thing where and again it made my head spin when I was reading it. The 1947 trust which again owns I think it's 8% of the company maybe 10 I can't remember the exact number uh is controlled by the company and pays out dividends and they use that dividend stream to in part pay the directors who are then required to use some of that dividend stream money to buy shares on the open market. But the executive chairman, the the family, the fifth generation family member we was talking about is the one who controls how much of the 1947 dividend goes to the directors. And I've just never seen anything like it before. And it strikes me as really weird because you could say, hey, huge alignment, right? Uh they're getting dividends that they're forced to plow back into the stock. Huge alignment. On the other hand, you could say huge misalignment. A, they want to keep paying a dividend because that's how they're getting paid from the 1947 trust. And B, because the executive chairman decides how much of the dividends go to the directors, they need to stay on his good side no matter what. Right? So, if he's walking around wearing no clothes, they're going to say, "Hey, great suit, sir." Because they kind of serve and get the dividends at his pleasure. Like, that was my understanding. I I could have been wrong. It was very confusing. I' never seen anything like it before, but that's uh that's kind of why I was asking about it. Yeah, >> I mean it's kind of how you might run a private family entity, right? You would you you it's as the owner of of the business, as the family owner, it's it's kind of your discretion to decide how much equity somebody gets, how much they get paid. It's kind of like a, you know, a private uh profit share. I would I would see it as >> I I think you're exactly right. It's just the way it was structured was a little strange to me. I've never seen before. Let me ask one last thing and then uh we kind of wrap it up. Again, holds are difficult to talk about because like hey, NAV is 100. It trades at 80. Should it tra should it trade at 90? Is NAV actually 100 or 150? But it's tough to like really ask why Jardine Matson, right? You laid out 15% discount to to market NAV. You probably think NAV is I'm just going to put words in your mouth 25% understated. So that 16% is closer to 35 or 40%. But you know, I mentioned Exor. I think Exor based on their numbers strings it half of half or under half of IA $35 per share of stock price $40 per share in cash plus MGM stock plus other stuff that's probably worth another 10 $10 per share. So that's trading at if I'm doing that math in my head right 70% of NAV. Um Persian Square there's a a popular one 27 and a half% discount to NAV. Obviously there's fee issues, control issues and everything but that's what comes with Hold Coast. I just listed three. We could probably find 20 more. Why why Jardine Matson over any of these other kind of discounted hold codes that I just walked through? >> Well, I think because of the you know the delta the change. I mean I mean you know this business this industry is the job is is filtering and so anyone who's looked at Johnny Mass over the past 30 years would have concluded as I did a decade ago you know horrible government governance you know past uh and it takes a long time for people to really believe um when something has fundamentally changed um and I you know I see lots of evidence that that that change is happening firstly And secondly, there's there's just so much uh lowhanging fruit. I mean, we haven't even got into Astra International, which again is the Indonesian conglomerate. I mean, I I was looking at it and I I believe I found 10 publicly listed subsidiaries of Astra, you know, which itself is a subsidiary of a subsidiary. So, there's there's a lot a lot you can do um to to restructure, simplify, and realize value. I mean go go go with that. Anything in particular? Obviously I was just focused mainly on the hold go the nav that but anything in particular you want to say about that one or that you think's particularly interesting like they've got I think if I remember correctly that's a third of NAV. Is there a reason to believe that NAV is understated or there's going to be some inflection point there or anything? >> Well they've they've really said very little about Astra International. Um, and I think one of the reasons for that is that again it's the largest business in Indonesia by revenue. Um, and so in some ways it's almost like a quasi state company. Uh, and so they have to be a little sensitive uh, about the changes they make. Uh, I understand that BCG is in there, you know, doing some sort of strategic review. Um, and I just find it hard to believe that with all that's going on in all the other group companies, they will, you know, they there'll be nothing done at Astra International. Um, as I say, it's incredibly complex with 10 codes within the business. The main the main entity of Astra is it's it's the largest dealer manufacturing dealer of cars in Indonesia. So um well over half they're the exclusive uh distributor of Toyota. Um so well over half cars sold in Indonesia which is a $250 million sorry $250 million population country. Uh and I think 80% of all uh you know two wheel two wheel motorbikes are sold and financed by this this entity Astra. So it's it's a massive business um and has and again is a sprawling conglomerate. So there's there's a lot that you can potentially do and and Indonesia is a very unpopular place at the moment with equity investors. >> I'm just laughing because with uh 10 listed subs and the complexity of that we we can do another a followup podcast on the whole at Astra International. It reminds me of a little bit of Voyet in uh France where you just get hold discounts on hold co discounts and one day then one. Cool. Well, look, I I think we've gone through all my questions. I just just want Is there any asset that uh we covered obviously we could go deeper into them, but I I think this more hold, but any astra asset that we haven't talked about or that we kind of glanced over that you think is just worth highlighting or anything else that I kind of should be asking about Jardine Matson that I haven't hit on? >> Not really. I mean yeah you can get into the weeds and there are so many you can find more and more businesses. So for example they own there in Asia Schindler which is the you know giant elevator manufacturer. Charlie Matson is their JV partner. They run a thousand Pizza Hut and KFC locations um mostly in you know across Asia. Um, so there's just once you peel back the layers, there's so many businesses and for me given, you know, the evidence of change that that all of that creates optionality. So that's >> is KFC still like kind of a dominant brand over in uh Asia? >> Uh, it's it's generally pretty yeah very successful. >> Okay. I just remember when I was, you know, 10 years ago when I was up and coming, everybody talked about KFC over in China. It's nothing like KFC over here. like it is the place. It is the hot, you know, it's upscale. It's where everybody wants to eat. I I wasn't sure if that had changed at all in the past 10 years. >> Yeah, I think it still continues to do to do very well. >> Cool. Okay. Well, this has been great. Look, Dom has a great write up on his substack. I'll include a link in the show notes if you want to go there. And it includes uh you know, as Dom mentioned at the top 200 years of history of Jardian Matson. He's been following it for 12 years, had a sell on it. uh you know the stock again I laugh at their annual report because we wouldn't deliver superior fiveyear returns and uh 10 year return negative sens but uh it may you know did it work for them no but it might just work for us now uh but do George from Ka this has been great thanks so much and looking forward to chatting soon thanks a lot >> a quick disclaimer nothing on this podcast should be considered investment advice guests or the hosts may have positions in any of the stocks mentioned during this podcast please do your own work and consult a financial adviser. Thanks.