The Three Numbers That Define Jardine Strategic Holdings

Some investors believe that conglomerates are inefficient. They believe that a disparate collection of businesses cannot be run as well as a company with a single focus. But conglomerates such as the Hong Kong-based “hong”, namely Jardine Strategic Holdings (SGX: J37), has put paid to this mistaken belief.

Jardine Strategic has, over the years, been able to deliver a consistently high Return on Equity (RoE). Over the last ten years, the RoE has been as high as 32% but more recently it has moderated to around 8.9%, which is about the market average.

Jardine Strategic’s impressive RoE can be traced to its relatively high Net Income Margin (before minority interest) of 12.1%. This is marginally lower than the average for Singapore’s blue chips of 14.8% but, nonetheless, striking.

The “hong” is also very good at making use of its assets, which is likely to silence critics of conglomerates. An Asset Turnover of 0.51 implies that the company generates $50 in revenues for every $100 of assets at its disposal. The average for the 30 companies that make up the Straits Times Index (SGX: ^STI) is also around 0.5.

Interestingly, Jardine Matheson is not highly leverage. It has around three times more assets than liabilities. This works out to a Leverage Ratio of 1.44.

By breaking apart the Return on Equity of conglomerate Jardine Strategic Holdings, it is easy to see how the “hong” manages to hold its own. Its RoE of 8.9% is the product of a striking Net Income Margin of 12.1%; an efficient Asset Turnover of 0.51 and a modest Leverage Ratio of 1.44.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore Director David Kuo doesn’t own shares in any companies mentioned.