Half Year Results 2018

RNS Number : 1509O

JPMorgan Asian Investment Tst PLC

15 May 2018

 

LONDON STOCK EXCHANGE ANNOUNCEMENT

JPMORGAN ASIAN INVESTMENT TRUST PLC

UNAUDITED HALF YEAR RESULTS FOR THE SIX MONTHS ENDED 31ST MARCH 2018

Legal Entity Identifier: 5493006R74BNJSJKCB17

Information disclosed in accordance with DTR 4.2.2

chairman's statement

I am pleased to report that in the six months to 31st March 2018 the Company's return on net assets was +6.2%, representing an outperformance of 2.0 percentage points over the benchmark, the MSCI All Countries Asia ex Japan Index, which returned +4.2% in sterling terms. The return to shareholders was +4.1%, reflecting a widening of the Company's discount from 8.0% to 10.0%.

The principal reason for the Company's outperformance against the benchmark was the portfolio's stock selection across China and key positions in Korea. Performance was also buoyed by the Company's allocation in Vietnam, an off-benchmark position achieved through investing into a JPMorgan Vietnam unit trust. The Investment Managers' Report reviews the Company's performance in more detail, along with a market review and outlook.

Dividend Policy and Discount Management

The Company's revised dividend policy has now been in place for over a year. As a reminder the dividend policy aims to pay, in the absence of unforeseen circumstances, a regular quarterly dividend equivalent to 1% of the Company's NAV on the last business day of each financial quarter, being the end of December, March, June and September. These dividends are paid from a combination of revenues and capital reserves. For the year ended 30th September 2017 dividends paid totalled 13.9 pence. In respect of the quarters to 31st December 2017 and to 31st March 2018 dividends of 4.0 pence and 3.9 pence respectively were paid. Two further dividends will be declared on the first business day after 30th June and 30th September 2018.

It is pleasing that the Company's average discount over the six months to 31st March 2018 was 8.9%, which compares favourably to the same six month period in 2017, which recorded an average of 12.8%. The Board is working with the Manager to increase the profile of the Company, and it is hoped that this additional promotion, together with the prudent use of share repurchases, will see the discount come in to single figures. It was not deemed necessary to complete any share repurchases over the reporting period.

Gearing

The Company has a £40 million three year multi currency loan facility with Scotiabank, with the option of further increasing the facility to £60 million. The investment managers use this facility to gear the portfolio in periods when they believe this leverage will enhance shareholder returns. The Company did not employ any gearing over the period.

Fees

In the summer of 2017 the Financial Conduct Authority published the findings of its asset management market study. The findings raised, amongst other issues, concerns about price competition and investor value for money within the asset management industry. In this context, the Board is pleased to note that the Company's 'Ongoing Charges' (representing the Company's management fee and all other operating expenses) are amongst the lowest within its comparable peer group of actively managed investment vehicles, within both the open and closed end fund universe.

Outlook

The Company's performance since the end of March 2018 has continued to be strong. Our investment team believes that the investment case for Asian equities remains positive. However, this view is tempered to some extent by an increase in volatility and slightly more demanding valuation levels.

Bronwyn Curtis OBE

Chairman

15th May 2018

Investment managers' report

Summary

During the six month period under review, the Company's return on net assets was +6.2%, outperforming Asian stock markets, as measured by the MSCI All Countries Asia ex Japan Index, which delivered a +4.2% return in sterling terms. In this report, we discuss the market backdrop, examine the drivers of the Company's performance, and then consider the outlook for Asian stock markets for the rest of 2018.

Market Review

Asian equities finished the fourth quarter of 2017 on a strong note with the regional index hitting an all-time high, supported by the ongoing synchronised global reflationary story and a rebound in exports. Policy reforms also surprised on the upside, with the Indian government announcing a USD 32 billion recapitalisation plan for the country's state-owned banks, the Chinese government committing to reforms and deleveraging, and the US Senate passing the tax reform bill. The US dollar resumed its devaluation trend, while the Federal Reserve raised benchmark interest rates by 25bps under the new governor Powell. Base metals prices rallied on the back of a weakening US dollar and healthy economic backdrop, while oil prices further strengthened on the back of improving demand, as well as supply discipline from oil-producing countries.

The first quarter of 2018 saw a return of market volatility, mainly driven by rising inflation expectations and an escalation of trade tensions between the US and China. The region started the quarter sustaining the strong momentum from last year, only to see a sharp correction in February, as rising inflation expectations triggered concerns whether the US Federal Reserve would taper its quantitative easing program more aggressively. Volatility also spiked from its all-time low in January amid the correction, and stayed elevated as the US and Chinese administrations began announcing import tariffs against each other. Since then, Asian equities have remained range-bound, driven by a relatively mixed set of fourth quarter 2017 earnings and a further correction in global equities. The US dollar further devalued in January but remained range-bound since then, while oil prices continued to climb.

Thailand, Malaysia and Singapore were the top-performing markets over the review period. Currency was a strong tailwind for these markets, while economic sentiment also remained positive with exports continuing to post year-on-year growth.

Korea, Taiwan and China modestly outperformed the broad region. The Korean economy has been improving, driven particularly by technology-led exports, and the central bank raising rates in December 2017, the first hike since 2011. Taiwan had a volatile period, particularly in the technology sector, which saw a sharp sell off in the fourth quarter of 2017 followed by a strong recovery in the first quarter. Despite escalating trade tensions with the US, China proved to be resilient. The first session of the 13th National People's Congress was held in early March, and the government announced a series of reform actions, including the restructuring of various government bodies such as the integration of the two major financial regulators (Chinese Banking Regulatory Commission and Chinese Insurance Regulatory Commission), some breakthroughs in land reform that will allow various provinces to trade their land quota, and a 400 billion Renminbi tax reduction program across various sectors - confirming the government's ongoing commitment to reform.

In contrast, India continued to lag over the review period. The announcement of the recapitalisation plans in the fourth quarter boosted Indian equities as it removed an overhang among investors regarding the PSU banks' lending capability. However, the market corrected in the first quarter as investors were concerned about scandals within the banking sector alongside an introduction of a long-term capital gains tax in the latest budget.

The Philippines and Indonesia were the worst performing markets. Philippine equities suffered from concerns over rising inflation and foreign selling pressure, while the Peso also depreciated. Indonesia's equity market was impacted by the telecom sector, as company results in this sector confirmed intensifying competition and cost pressures.

Performance

Over the six months ended 31st March 2018, the portfolio outperformed its benchmark index. Positive relative performance was primarily driven by stock selection, with positions in China being the standout contributors.

In China, contributions to the Company's returns were broad-based. Ping An Insurance, a leading personal financial group with businesses in insurance, banking and investment, outperformed because of strong earnings coupled with rising onshore yields. Sino Biopharmaceutical's price rose as the market started to factor in a strong pipeline for 2018 with two key drugs, Tenovir (hepatitis B) and Anlotinib (a rare type of tissue cancer). Shenzhou International Group, a vertically integrated knitwear manufacturer, aided performance as the growth outlook, especially from its Vietnam plant, improved. Within the technology sector, our long-standing zero exposure to Baidu and overweight in Tencent contributed.

Other notable contributors include our positions in two Korean cyclical industrials. Samsung Engineering's price rose following a new contract announcement from an existing Middle East client, while Daewoo Shipbuilding benefitted from improving sentiment following new LNG tanker order wins and new build prices starting to rebound. Elsewhere in Korea, Hyundai Glovis and Mobis announced a restructuring program where Glovis's business structure is expanded from logistics to module and after-sale parts, thereby our overweight position in the stock benefitted returns. Outside North Asia, DBS in Singapore performed well as the bank announced a special dividend with a progressive dividend payout policy, verifying our investment thesis, while CP All in Thailand outperformed on the back of continued improvement in same stores sales at 7-11.

From the asset allocation perspective, our off-benchmark exposure to Vietnam through the JPMorgan Vietnam Fund aided performance.

In terms of detractors from performance, stock selection was disappointing in Taiwan. Largan Precision and Himax Technologies suffered from weak smartphone demand and poor sales of Apple, and in the case of the former, increasing competition and execution issues also weighed on the share price. Astra International in Indonesia underperformed due to continued auto (Toyota/Daihatsu) share losses to Mitsubishi Motors. However, we believe this is temporary and Astra will resume stronger growth later in the year. Not owning Cellitron in Korea also detracted, since the stock return was very strong leading up to its KOSPI200 inclusion in March with many investors gaming the situation ahead of passive money buying.

Outlook

Volatility has returned to equity markets, due in large part to rising trade tensions, concerns about the pace of rate hikes in the US, and, in some cases, company-specific headlines that have undermined the leadership of the large-cap new economy stocks. However, most of this risk is rather exogenous in nature and the investment case for Asian equities remains intact, supported by a favourable macroeconomic environment, robust earnings growth and attractive valuation relative to the major peers. Last but not least, incremental flows should also benefit Asian equities from an allocation perspective.

While inflation finally started to show signs of picking up in selected countries in Asia, economic momentum is still positive, underlined by growing regional exports, robust manufacturing activity and improving consumer sentiment. These factors all pointed towards a healthy backdrop for Asian economic growth ahead, even if headline indicators have softened slightly as we enter the second year of a growth recovery trend. With low-teens earnings growth expectations and valuations trading at just above the 10-year average (as measured by 12-month forward price to earnings), one could argue that Asia's late arrival to the global recovery indicates the possibility of a catch-up in trade, given the strong relative growth story that used to favour the US and is now increasingly shifting towards Asia.

In terms of risk in the Asian economy, the market is more vulnerable to shocks such as an unexpected US dollar rally, potential spill-over from a further correction in US equities, or downside surprises in global economic indicators. The tariff measures announced by the US have been met with a response in kind from China, and the potential for escalation of trade frictions is real, with negative consequences for the global economy and equity valuations. We remain hopeful that such moves simply force the US and China to the bargaining table, and a negotiation resolution is most likely in our view. For Asia in particular, we continue to monitor China's transition to a service-oriented economy and the government's execution of supply side reforms, upcoming elections in India and ASEAN countries, inflation expectations and indications of further monetary tightening, as well as interest rate trajectories.

The longer term story remains excellent, with economic growth supporting an expanding middle class of consumers and also the companies who sell to them. Increasingly in Asia we find franchises which are driven by the attractive internal dynamics in the region and which are not simply proxies for global economic activity. Further we find an ever-expanding cohort of Asian companies which are world leaders in their respective sectors. In aggregate we believe corporate governance is improving - albeit with the necessity for investors of remaining very selective. Despite these positive factors valuations are materially cheaper than those in much of the West.

Richard Titherington

Ayaz Ebrahim

Investment Managers

15th May 2018

Interim Management Report

The Company is required to make the following disclosures in its half year report.

Principal Risks and Uncertainties

The principal risks and uncertainties faced by the Company have not changed since the Company's year end and fall into the following broad categories: investment and strategy; market; accounting, legal and regulatory; corporate governance and shareholder relations; operational; and financial. Information on each of these areas is given in the Business Review within the Annual Report and Accounts for the year ended 30th September 2017.

Related Party Transactions

During the first six months of the current financial year, no transactions with related parties have taken place which have materially affected the financial position or the performance of the Company during the period.

Going Concern

The Directors believe, having considered the Company's investment objectives, risk management policies, capital management policies and procedures, liquid nature of the portfolio and expenditure projections, that the Company has adequate resources, an appropriate financial structure and suitable management arrangements in place to continue in operational existence for the foreseeable future and, more specifically, that there are no material uncertainties pertaining to the Company that would prevent its ability to continue in such operational existence for at least twelve months from the date of the approval of this half yearly financial report. For these reasons, they consider there is reasonable evidence to continue to adopt the going concern basis in preparing the accounts.

Directors' Responsibilities

The Board of Directors confirms that, to the best of its knowledge:

(i)  the condensed set of financial statements contained within the half yearly financial report has been prepared in accordance with FRS 104 'Interim Financial Reporting' and gives a true and fair view of the state of affairs of the Company and of the assets, liabilities, financial position and net return of the Company, as at 31st March 2018, as required by the UK Listing Authority Disclosure and Transparency Rules 4.2.4R; and

(ii) the interim management report includes a fair review of the information required by 4.2.7R and 4.2.8R of the UK Listing Authority Disclosure and Transparency Rules.

In order to provide these confirmations, and in preparing these financial statements, the Directors are required to:

•    select suitable accounting policies and then apply them consistently;

•    make judgements and accounting estimates that are reasonable and prudent;

•    state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the financial statements; and

•    prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business;

and the Directors confirm that they have done so.

For and on behalf of the Board

Bronwyn Curtis OBE

Director

15th May 2018

STATEMENT OF COMPREHENSIVE INCOME
for the six months ended 31st March 2018

	(Unaudited) Six months ended 31st March 2018			(Unaudited) Six months ended 31st March 2017			(Audited) Year ended 30th September 2017
	Revenue	Capital	Total	Revenue	Capital	Total	Revenue	Capital	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Gains on investments held at fair value through profit or loss	-	22,124	22,124	-	27,424	27,424	-	60,256	60,256
Net foreign currency losses	-	(327)	(327)	-	(566)	(566)	-	(839)	(839)
Income from investments	1,843	-	1,843	1,455	-	1,455	6,509	-	6,509
Interest receivable and similar income	28	-	28	1	-	1	7	-	7
Gross return	1,871	21,797	23,668	1,456	26,858	28,314	6,516	59,417	65,933
Management fee	(1,001)	-	(1,001)	(822)	-	(822)	(1,639)	-	(1,639)
Other administrative expenses	(416)	-	(416)	(419)	-	(419)	(754)	-	(754)
Net return on ordinary activities before finance costs and taxation	454	21,797	22,251	215	26,858	27,073	4,123	59,417	63,540
Finance costs	(82)	-	(82)	(83)	-	(83)	(224)	-	(224)
Net return on ordinary activities before taxation	372	21,797	22,169	132	26,858	26,990	3,899	59,417	63,316
Taxation (charge)/credit	(41)	(210)	(251)	61	-	61	(181)	-	(181)
Net return on ordinary activities after taxation	331	21,587	21,918	193	26,858	27,051	3,718	59,417	63,135
Return per share (note 3)	0.35p	22.95p	23.30p	0.20p	28.30p	28.50p	3.93p	62.87p	66.80p

All revenue and capital items in the above statement derive from continuing operations.

The 'Total' column of this statement is the profit and loss account of the Company and the 'Revenue' and 'Capital' columns represent supplementary information prepared under guidance issued by the Association of Investment Companies.

The net return on ordinary activities after taxation represents the profit for the period and also the total comprehensive income.

statement of changes in equity
for the six months ended 31st March 2018

	Called up		Exercised	Capital
	share	Share	warrant	redemption	Capital	Revenue
	capital	premium	reserve	reserve	reserves1	reserve1	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Six months ended 31st March 2018 (Unaudited)
At 30th September 2017	23,762	31,646	977	25,121	271,661	-	353,167
Net return on ordinary activities	-	-	-	-	21,587	331	21,918
Dividends paid in the period (note 4)	-	-	-	-	(7,007)	(331)	(7,338)
At 31st March 2018	23,762	31,646	977	25,121	286,241	-	367,747
Six months ended 31st March 2017 (Unaudited)
At 30th September 2016	23,762	31,646	977	25,121	218,124	5,683	305,313
Repurchase of shares into Treasury	-	-	-	-	(2,392)	-	(2,392)
Net return on ordinary activities	-	-	-	-	26,858	193	27,051
Dividends paid in the period (note 4)	-	-	-	-	-	(5,798)	(5,798)
At 31st March 2017	23,762	31,646	977	25,121	242,590	78	324,174
Year ended 30th September 2017 (Audited)
At 30th September 2016	23,762	31,646	977	25,121	218,124	5,683	305,313
Repurchase of shares into Treasury	-	-	-	-	(2,892)	-	(2,892)
Net return on ordinary activities	-	-	-	-	59,417	3,718	63,135
Dividends paid in the year (note 4)	-	-	-	-	(2,988)	(9,401)	(12,389)
At 30th September 2017	23,762	31,646	977	25,121	271,661	-	353,167

¹ These reserves form the distributable reserve of the Company and may be used to fund distribution of profits to investors via dividend payments.

statement of financial position
at 31st March 2018

	(Unaudited)	(Unaudited)	(Audited)
	31st March 2018	31st March 2017	30th September 2017
	£'000	£'000	£'000
Fixed assets
Investments held at fair value through profit or loss	364,531	322,572	349,053
Current assets
Derivative financial assets	1	1	-
Debtors	4,524	2,275	526
Cash and cash equivalents	2,927	715	4,687
	7,452	2,991	5,213
Creditors: amounts falling due within one year	(4,234)	(1,388)	(1,099)
Derivative financial liabilities	(2)	(1)	-
Net current assets	3,216	1,602	4,114
Total assets less current liabilities	367,747	324,174	353,167
Creditors: amounts falling due after more one year	-	-	-
Net assets	367,747	324,174	353,167
Capital and reserves
Called up share capital	23,762	23,762	23,762
Share premium	31,646	31,646	31,646
Exercised warrant reserve	977	977	977
Capital redemption reserve	25,121	25,121	25,121
Capital reserves	286,241	242,590	271,661
Revenue reserve	-	78	-
Total shareholders' funds	367,747	324,174	353,167
Net asset value per share (note 5)	390.9p	344.0p	375.4p

statement of cash flows
for the six months ended 31st March 2018

	(Unaudited)	(Unaudited)	(Audited)
	Six months ended	Six months ended	Year ended
	31st March 2018	31st March 2017	30th September 2017
	£'000	£'000	£'000
Net cash outflow from operations before dividends and interest (note 6)	(1,850)	(1,385)	(2,721)
Dividends received	734	570	5,654
Interest received	14	1	5
Overseas tax recovered	-	271	473
Interest paid	(128)	(112)	(203)
Net cash (outflow)/inflow from operating activities	(1,230)	(655)	3,208
Purchases of investments	(120,004)	(81,262)	(161,805)
Sales of investments	126,834	105,253	193,140
Settlement of forward currency contracts	(22)	(24)	8
Net cash inflow from investing activities	6,808	23,967	31,343
Dividends paid	(7,338)	(5,798)	(12,389)
Repurchase of shares into Treasury	-	(2,261)	(2,892)
Repayment of bank loans	-	(15,602)	(15,602)
Net cash outflow from financing activities	(7,338)	(23,661)	(30,883)
(Decrease)/increase in cash and cash equivalents	(1,760)	(349)	3,668
Cash and cash equivalents at start of period/year	4,687	1,065	1,065
Exchange movements	-	(1)	(46)
Cash and cash equivalents at end of period/year	2,927	715	4,687
(Decrease)/increase in cash and cash equivalents	(1,760)	(349)	3,668
Cash and cash equivalents consist of:
Cash and short term deposits	2,927	715	2,451
Cash held in JPMorgan US Dollar Liquidity Fund	-	-	2,236
	2,927	715	4,687

Notes to the financial statements
for the six months ended 31st March 2018

1.     Financial statements

The information contained within the financial statements in this half year report has not been audited or reviewed by the Company's auditors.

The figures and financial information for the year ended 30th September 2017 are extracted from the latest published financial statements of the Company and do not constitute statutory accounts for that year. Those financial statements have been delivered to the Registrar of Companies and including the report of the auditors which was unqualified and did not contain a statement under either section 498(2) or 498(3) of the Companies Act 2006.

2.     Accounting policies

Basis of accounting

The financial statements have been prepared in accordance with the Companies Act 2006, FRS 102 'The Financial Reporting Standard applicable in the UK and Republic of Ireland' of the United Kingdom Generally Accepted Accounting Practice ('UK GAAP') and with the Statement of Recommended Practice 'Financial Statements of Investment Trust Companies and Venture Capital Trusts' (the 'SORP') issued by the Association of Investment Companies in November 2014 and updated in February 2018.

FRS 104, 'Interim Financial Reporting', issued by the FRC in March 2015 has been applied in preparing this condensed set of financial statements for the six months ended 31st March 2018.

All of the Company's operations are of a continuing nature.

The accounting policies applied to this condensed set of financial statements are consistent with those applied in the financial statements for the year ended 30th September 2017.

3.     Return per share

		(Unaudited)	(Unaudited)	(Audited)
		Six months ended	Six months ended	Year ended
		31st March 2018	31st March 2017	30th September 2017
		£'000	£'000	£'000
	Return per share is based on the following:
	Revenue return	331	193	3,718
	Capital return	21,587	26,858	59,417
	Total return	21,918	27,051	63,135
	Weighted average number of shares in issue	94,081,493	94,913,858	94,511,001
	Revenue return per share	0.35p	0.20p	3.93p
	Capital return per share	22.95p	28.30p	62.87p
	Total return per share	23.30p	28.50p	66.80p

4.     Dividends

		(Unaudited)	(Unaudited)	(Audited)
		Six months ended	Six months ended	Year ended
		31st March 2018	31st March 2017	30th September 2017
		£'000	£'000	£'000
	Dividends paid
	2017 fourth quarterly dividend of 3.8p (2016: 3.0p)	3,575	2,851	2,851
	2018 first quarterly dividend of 4.0p (2017: 3.1p)	3,763	2,947	2,947
	2017 second quarterly dividend of 3.4p	-	-	3,204
	2017 third quarterly dividend of 3.6p	-	-	3,387
	Total dividends paid in the period/year	7,338	5,798	12,389

A second interim dividend of 3.9p has been declared for payment on 9th May 2018 for the financial year ending 30th September 2018.

Dividend payments in excess of the revenue amount will be paid out of the Company's distributable capital reserve.

5.     Net asset value per share

		(Unaudited)	(Unaudited)	(Audited)
		Six months ended	Six months ended	Year ended
		31st March 2018	31st March 2017	30th September 2017
	Net assets (£'000)	367,747	324,174	353,167
	Number of shares in issue	94,081,493	94,241,493	94,081,493
	Net asset value per share	390.9p	344.0p	375.4p

JPMORGAN FUNDS LIMITED

15th May 2018

For further information, please contact:

Alison Vincent

For and on behalf of

JPMorgan Funds Limited

020 7742 4000

Neither the contents of the Company's website nor the contents of any website accessible from hyperlinks on the Company's website (or any other website) is incorporated into, or forms part of, this announcement.

JPMORGAN ASSET MANAGEMENT (UK) LIMITED

ENDS

A copy of the Half Year Report has been submitted to the National Storage Mechanism and will shortly be available for inspection at www.morningstar.co.uk/uk/NSM

The Half Year Report will also shortly be available on the Company's website at www.jpmasian.co.uk  where up to date information on the Company, including daily NAV and share prices, factsheets and portfolio information can also be found.

 

END

 

 

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