DBS Group Research sees stronger investment potential in Jardine Matheson Holdings (JMH) than in its subsidiary, Jardine Matheson Southeast Asia (JMSEA), arguing that the parent company offers greater exposure to the group’s ongoing restructuring and more room for a valuation recovery.

In research notes published on Oct 19 and 20, analyst Elizabelle Pang reaffirmed a “buy” recommendation on JMH but reduced its target price to US$85 from US$90. For JMSEA, DBS lowered its rating to “hold” from “buy” and cut its target price to S$25 from S$35.50.

The contrasting calls reflect different expectations for the two listed companies. DBS considers much of JMSEA’s anticipated value creation to be reflected in its current valuation, whereas JMH remains priced at a significant discount to the estimated worth of its underlying holdings.

JMSEA, previously known as Jardine Cycle & Carriage, recently adopted its new name to better represent its strategic position within the Jardine Matheson Group’s South-east Asian operations.

JMH’s Valuation Discount Could Narrow

JMH’s implied holding company discount has risen to approximately 37 per cent, compared with its historical average of around 32 per cent. This persists even as the group has outlined plans to improve shareholder returns, redeploy capital and pursue additional growth opportunities through 2030.

DBS estimates that the discount could fall to 25 per cent if management makes meaningful progress on these initiatives. Key measures include recycling at least US$4 billion of capital by 2030, continuing its US$500 million share repurchase programme and restoring earnings growth at Indonesian subsidiary Astra International.

Pang noted that investors have responded positively to JMH’s strategic changes but are looking for concrete evidence of progress. Key developments to watch include an improvement in Astra’s earnings, additional earnings contributions from I-MED, progress in asset disposals and proof that proceeds from capital recycling can be reinvested profitably.

Earlier this year, JMH completed the acquisition of I-MED Radiology Network for A$3.4 billion, equivalent to approximately US$2.4 billion. The Australian business provides diagnostic imaging and teleradiology services.

DBS also sees further simplification of the group structure, improved disclosure of net asset value (NAV) and stronger operating results as important conditions for a more durable improvement in JMH’s valuation.

The brokerage cited Berkshire Hathaway and Sweden-based Investor AB as examples of investment holding companies that have challenged the conventional conglomerate discount. Their experience highlights how disciplined capital allocation can support long-term value creation.

JMSEA Faces More Limited Upside

JMSEA has largely completed the streamlining of its portfolio following plans to sell its Cycle & Carriage automotive distribution operations and distribute its remaining Toyota shares to shareholders.

With these changes substantially reflected in its valuation, DBS estimates that JMSEA is trading at approximately a 20 per cent premium to its adjusted NAV, leaving less scope for additional gains.

The company’s asset exposure has also become increasingly concentrated in Astra International, which represents more than 85 per cent of JMSEA’s gross asset value. This concentration makes JMSEA more sensitive to Indonesia’s economic outlook and potential weakness in the rupiah.

In response, DBS increased its assumed holding company discount for JMSEA to 20 per cent from 5 per cent. It also reduced its underlying earnings estimates by 5 per cent for FY2026 and 10 per cent for FY2027.

Transport operator Tunas Ridean remains a possible divestment candidate, with an estimated value of US$100 million to US$140 million, according to DBS.

The brokerage also highlighted the possibility of further consolidation of ownership in JMSEA. JMH purchased additional shares in the subsidiary in May and September, although DBS cautioned that the timing and probability of any further transaction are not yet clear.

Astra Developments in Focus

Astra International’s investor day, scheduled for Nov 16, could provide a near-term trigger for both JMH and JMSEA. Updates on the Indonesian group’s strategic direction, medium-term financial objectives and potential share repurchases may help investors reassess the valuations of both companies.

At Tuesday’s close, JMH shares had gained 3 per cent, or US$1.67, to US$57.41. JMSEA shares moved in the opposite direction, falling 1.7 per cent, or S$0.39, to S$23.20.