Despite Jardine Matheson’s 1H20 underlying net profit of US$373 million ($512.6 million) coming in below expectations at 24% of CGS-CIMB’s full-year estimate, CGS-CIMB analyst William Tng has upgraded Jardine Matheson to “add” from “hold” due to its strong balance sheet that can help see the company through the uncertainties arising from Covid-19.

Including the decrease in fair value of investment properties of US$1.2 billion, the company reported a net loss of US775 million.

See: Jardine Matheson and Jardine Strategic post decline in 1H20 earnings

Hong Kong Land’s Hong Kong office portfolio saw a 5% vacancy at the end of 1H20 compared to FY19’s 2.9%, while the Singapore office portfolio saw positive rental reversions and 1.5% vacancy at the end of 1H20 compared to the 5% in FY19.

Excluding the gain on the disposal on its investment in Permata Bank, Astra’s net profit fell 44% y-o-y in Indonesian rupiah mainly due to significantly lower contributions from its automotive, financial services and heavy equipment and mining businesses.

Dairy Farm sales fell 9% y-o-y, while underlying profit fell 40% y-o-y due to lack of international tourists in Hong Kong and social distancing measures in Southeast Asia.

Tng has also reduced the company’s target price to US$48.61 ($66.79) from US$52.53 previously, and cut earnings per share (EPS) for FY20F by 29.8%.

The target price, according to Tng, is still based on 0.78x FY20F price-to-book value (P/BV) which is 0.5 standard deviation (s.d.) below its historical 20-year average P/BV.

“Given that some of the earnings uncertainty has been priced in, we upgrade the stock from ‘hold’ to ‘add’,” he writes in a report dated July 31.

Tng has also cut Jardine Matheson’s EPS for FY21F-22F by 7.7% and 1.3% respectively.

“Our FY20-22F earnings cuts reflect the downward revisions for its operating subsidiaries given the uncertainties from the Covid-19 outbreak,” adds Tng.

Shares in Jardine Matheson closed US$2.96 lower, or 7.2% down, at US$37.96.