Half-year Report

RNS Number : 2407G

JPMorgan Chinese Inv Tst PLC

25 May 2017

 

LONDON STOCK EXCHANGE ANNOUNCEMENT

JPMORGAN CHINESE INVESTMENT TRUST PLC

UNAUDITED HALF YEAR RESULTS FOR THE SIX MONTHS ENDED 31ST MARCH 2017

chairman's statement

Performance

Over the six month period ended 31st March 2017, the Company's total return to shareholders (+10.1%) outperformed the benchmark, the MSCI China Index, which delivered +9.0% (in sterling terms). The total return on net assets (with net dividends reinvested) was +7.7%, underperforming the benchmark.

The relative underperformance to the benchmark index is explained in the Investment Managers' Report which provides a detailed commentary on the portfolio positioning and the positive outlook for investing in onshore China.

Loan Facility and Gearing

The Investment Managers have been given the flexibility by the Board to manage the gearing tactically within a range set by the Board of 10% net cash to 20% geared. During the period the Company's month-end gearing ranged from 8.2% to 9.1% geared, ending the half year at 8.9% geared.

On 20th January 2017 the Company renewed its £30 million credit facility with Scotiabank for a further 364 days with an increased margin of 77.5 bps and a commitment fee of 20 bps if the utilised commitment is more than or equals 50 per cent. of the commitment and 30 bps if the utilised commitment is less than 50 per cent. of the commitment. £22.3 million was drawn down on this facility as at 31st March 2017.

Share Repurchases and Issues in the Period

At the time of writing, the Company's issued share capital consists of 72,928,162 Ordinary shares, excluding shares held in Treasury. During the six month reporting period the Company repurchased 1,146,773 shares to hold in Treasury. The Company did not issue any shares during this period.

Board of Directors

As the longest serving member of the Board, I shall retire at the next Annual General Meeting in 2018, which coincides with the Company's next continuation vote. The Board therefore, through its Nomination and Remuneration Committee, considered succession planning for the vacating board seat and it agreed to appoint David Graham to become an independent non-executive Director as from 1st May 2017. David Graham is a Chartered Accountant by training whose career has been in investment management. The Board looks forward to working with David and to the wealth of experience he shall bring to the Board.

Fund Manager

We are delighted to note that the Fund Management team has been enhanced by the hire of additional experienced personnel in both portfolio management and research to work alongside the existing team led by Howard Wang. The hires will be based in JPMorgan Asset Management's new office in Shanghai, in addition to Hong Kong and Taipei. Rebecca Jiang has joined the JP Morgan Asset Management Greater China team as an Executive Director in portfolio management to work alongside Howard Wang on our portfolio. Shumin Huang will continue to lead the Greater China Research Analysts who are now a significant and fully integrated part of the investment process.

Outlook and Strategy

The results arising from the Board's encouragement to our Investment Managers to make greater use of gearing and pursue an active approach to finding well-researched growth stocks listed on the Shanghai and Shenzhen exchanges are well-explained in the Investment Managers' Report. These results are indeed encouraging and are set against a background of the Company's objective to differentiate itself from open-ended fund structures for China. With a strengthened team of analysts, an increasing variety of good investable stocks are being unearthed. Also, the Shanghai and Shenzhen Stock Connect programmes are now in place, thereby facilitating easier access to the Chinese onshore market and a greater number of listed companies. We anticipate that usage of these programmes will accelerate against the background of the growing importance of China in the global economy and the increasing opportunities for international investors to invest in good Chinese growth companies.

William Knight

Chairman

25th May 2017

Investment Managers' Report

Performance commentary

Over the six months to 31st March 2017, the total return on net assets rose by 7.7%, compared to the benchmark (MSCI China Index) return of +9.0%. The underperformance was driven by various holdings in Hong Kong and Taiwanese companies which lagged the performance of both onshore and offshore Chinese listed stocks. Gearing, which averaged 8.7% during the period, made a positive contribution but counter weight the impact of the underweight to China.

The core structural growth stocks in the information technology (IT) and consumer discretionary sectors were among the top contributors. Largan Precision and AAC Technologies benefited from the positive outlook for dollar based demand for dual-camera lens and acoustics. Hangzhou Hikvision (the digital surveillance video manufacturer) rallied on profit growth and remains competitively positioned with technological barriers to entry and strong demand across a wide range of industries. Brilliance China Automotive continued to benefit from a strong competitive positioning in its model cycle, whilst Nexteer Automotive has the potential to gain market share in electric powered steering systems. The holding in Hangzhou Robam, a specialist in kitchen appliances, benefited from consumers' continued drive to upgrade their kitchens.

There were various detractors to performance at a stock level. The worst performer was the holding in Regina Miracle, the textile maker, reflecting complications in its Vietnam operations and poor first half results in 2017, resulting in the position being trimmed. China Resources Phoenix Healthcare came under pressure after a profits warning given one-off items from the CR Healthcare deal and a lack of progress in a new acquisition. The position in Wangsu Science and Technology (A-share) was sold following poor earnings, reflecting deteriorating competitive conditions in the content delivery network industry. The holding in Himax Technologies was reduced following concern over the commitment to Augmented Reality/Virtual Reality in 2017-2018. The position in Spring Airlines (A-share) was also reduced as earnings deteriorated in the face of falling international yields, which is likely to continue in the near term.

Positioning

The portfolio retains exposure to structural growth companies and is underweight in the low-growth, low-quality and old industrials companies. 86% of the portfolio is invested in mainland Chinese listed companies, 9% in Taiwanese companies and 5% in Hong Kong based listed companies. Gearing has remained stable at nearly 9%. The allocation to A-shares has increased from just under 11% at the end September 2016 to almost 14% at the end March 2017, a trend we expect to continue as Hong Kong/China Stock Connect provides access to the onshore market where there are greater opportunities to invest in growth companies.

At the stock level, we continue to find quality, structural growth holdings in the consumer, healthcare, information technology and environmental services sectors, which are well-positioned to deliver better earnings growth than the market and peers over the long term. Given the value vs growth divergence last year, we have broadly increased our growth exposure while trimming back the cyclical stocks, most notably increasing exposure to the consumer and healthcare sectors. In the consumer sectors, several of the purchases included A-share ideas identified by our research analysts, including SAIC Motor, the largest auto original equipment manufacturer in China, and Ningbo Joyson, which buys auto parts assets for sale globally. Other purchases that capitalise on the trend of consumers to upgrade include custom furniture maker, Suofeiya Home Collection, white goods producer Qingdao Haier and premium liquor brand Kweichow Moutai. Other new positions outside of the A-Share market include the personal hygiene manufacturer Hengan International and the textile maker Eclat Textile. Although the portfolio remains underweight in financials, exposure to insurance was increased to benefit from the reflationary environment with the addition of Ping An Insurance and China Life Insurance.

In addition to the core positions, the portfolio has initiated a number of smaller tactical positions, typically more cyclical in nature, including Chalco, where the aluminium market is seeing In the gaming space the holding in Wynn Macau was switched into MGM,

Outlook

Without the pressure of rising US yields and thus the US dollar, China has more room for a gradual normalisation of domestic monetary policy as the economy recovers. In addition, the corporate earnings recovery has broadened to consumer-facing sectors, giving policymakers more room to tighten policy on overstimulated sectors such as real estate and autos. Consequently, we expect Chinese equities to begin a gradual shift in sector leadership, mirroring a recovery that began with upstream raw materials and extending downstream to the consumer. The valuations of both onshore and offshore listed Chinese companies are still at reasonable levels after the recent rally. Evidence of further deep structural reform would provide further stimulus to any re-rating. We believe growth sectors should outperform given reasonable valuations, lagging performance compared to value cyclicals and robust earnings growth.

The potential gradual normalisation of domestic monetary policy in China should provide for a supportive backdrop to Hong Kong equities, including persistently buoyant liquidity conditions helped by rising interest from buying from mainland Chinese investors. Continued mainland China flows would benefit the property, gaming, financial and retail segments. While the new Chief Executive of Hong Kong, Carrie Lam, remains focused on increasing land supply, external constraints will cap any significant acceleration of new supply. It is likely that the government will look for incremental measures to rein in market excess. However, any major adjustments will be dependent on market interest rates and supply additions in the long run.

Despite disappointing retail sales growth in February, we believe that retailers and retail landlords should benefit from the normalisation of retail sales both in Hong Kong and China. Exporters should also continue to see strong secular growth opportunities, especially as the risks of trade tension between the US and China subside. In Taiwan strong foreign inflows could continue to drive the market upwards, however, disappointing first-quarter results, due to a strong local currency, could result in potential consolidation in the near term, Ample liquidity and still-undemanding valuations should help minimise the risk on the downside, but we believe we are likely to see earnings growth delayed until the second half of the year.

Against the macro and policy backdrop across the Greater China region, we remain positive on the stock-specific opportunities available in these markets and continue to have the highest conviction in the structural growth companies and increasingly those listed on the A-share market.

Howard Wang

Emerson Yip

Rebecca Jiang

Shumin Huang

Investment Team

25th May 2017

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 and fall into the following broad categories: investment underperformance; loss of investment team; discount; market; political, economic and governance; change of corporate control of the Manager; accounting, legal and regulatory; corporate governance and shareholder relations; operational; going concern 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 2016.

Related Parties 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, 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 2017, 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

William Knight
Chairman

25th May 2017

For further information, please contact:

Lucy Dina

For and on behalf of

JPMorgan Funds Limited, Secretary

020 7742 4000

Please note that up to date information on the Company, including daily NAV and share prices, factsheets and portfolio information can be found at www.jpmchinese.co.uk

statement of Comprehensive income
for the six months ended 31st March 2017

	(Unaudited) Six months ended 31st March 2017			(Unaudited) Six months ended 31st March 2016			(Audited) Year ended 30th September 2016
	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	-	14,641	14,641	-	10,826	10,826	-	47,348	47,348
Net foreign currency losses	-	(723)	(723)	-	(447)	(447)	-	(1,776)	(1,776)
Income from investments	68	-	68	42	-	42	3,548	-	3,548
Interest receivable and similar income	123	-	123	11	-	11	83	-	83
Gross return	191	13,918	14,109	53	10,379	10,432	3,631	45,572	49,203
Management fee	(973)	-	(973)	(817)	-	(817)	(1,660)	-	(1,660)
Other administrative expenses	(275)	-	(275)	(251)	-	(251)	(476)	-	(476)
Net (loss)/return on ordinary activities before finance costs and taxation	(1,057)	13,918	12,861	(1,015)	10,379	9,364	1,495	45,572	47,067
Finance costs	(142)	-	(142)	(141)	-	(141)	(252)	-	(252)
Net (loss)/return on ordinary activities before taxation	(1,199)	13,918	12,719	(1,156)	10,379	9,223	1,243	45,572	46,815
Taxation	365	-	365	(14)	(21)	(35)	92	(21)	71
Net (loss)/return on ordinary activities after taxation	(834)	13,918	13,084	(1,170)	10,358	9,188	1,335	45,551	46,886
(Loss)/return per share (note 4)	(1.13)p	18.92p	17.79p	(1.56)p	13.81p	12.25p	1.79p	60.87p	62.66p

statement of changes in equity
for the six months ended 31st March 2017

	Called		Exercised	Capital
	up share	Share	warrant	redemption	Other	Capital	Revenue
	capital	premium	reserve	reserve	reserve	reserves	reserve1	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Six months ended 31st March 2017 (Unaudited)
At 30th September 2016	19,481	13,321	3	581	37,392	106,641	2,376	179,795
Repurchase of shares into Treasury	-	-	-	-	-	(2,419)	-	(2,419)
Net return/(loss) on ordinary activities	-	-	-	-	-	13,918	(834)	13,084
Dividend paid in the period	-	-	-	-	-	-	(1,178)	(1,178)
At 31st March 2017	19,481	13,321	3	581	37,392	118,140	364	189,282
Six months ended 31st March 2016 (Unaudited)
At 30th September 2015	19,481	13,321	3	581	37,392	62,763	2,391	135,932
Net return/(loss) on ordinary activities	-	-	-	-	-	10,358	(1,170)	9,188
Dividend paid in the period	-	-	-	-	-	-	(1,350)	(1,350)
At 31st March 2016	19,481	13,321	3	581	37,392	73,121	(129)	143,770
Year ended 30th September 2016 (Audited)
At 30th September 2015	19,481	13,321	3	581	37,392	62,763	2,391	135,932
Repurchase of shares into Treasury	-	-	-	-	-	(1,673)	-	(1,673)
Net return on ordinary activities	-	-	-	-	-	45,551	1,335	46,886
Dividend paid in the year	-	-	-	-	-	-	(1,350)	(1,350)
At 30th September 2016	19,481	13,321	3	581	37,392	106,641	2,376	179,795

¹ This reserve forms 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 2017

	(Unaudited)	(Unaudited)	(Audited)
	31st March 2017	31st March 2016	30th September 2016
	£'000	£'000	£'000
Fixed assets
Investments held at fair value through profit or loss	206,160	160,828	195,157
Current assets
Debtors	204	41	1,599
Cash and cash equivalents	1,549	1,997	515
	1,753	2,038	2,114
Current liabilities
Creditors: amounts falling due within one year	(18,631)	(19,096)	(17,476)
Net current liabilities	(16,878)	(17,058)	(15,362)
Total assets less current liabilities	189,282	143,770	179,795
Net assets	189,282	143,770	179,795
Capital and reserves
Called up share capital	19,481	19,481	19,481
Share premium	13,321	13,321	13,321
Exercised warrant reserve	3	3	3
Capital redemption reserve	581	581	581
Other reserve	37,392	37,392	37,392
Capital reserves	118,140	73,121	106,641
Revenue reserve	364	(129)	2,376
Total shareholders' funds	189,282	143,770	179,795
Net asset value per share (note 5)	259.5p	191.7p	242.7p

Company registration number: 223583

 Notes to the Financial Statements for the six months ended 31st March 2017

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 2016 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

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 revised 'SORP') issued by the Association of Investment Companies in November 2014, and updated in January 2017.

FRS 104, 'Interim Financial Reporting', issued by the Financial Reporting Council ('FRC') in March 2015 has been applied in preparing this condensed set of financial statements for the six months ended 31st January 2017.

The Company has elected not to prepare a Statement of Cash Flows for the current period on the basis that substantially all of its investments are liquid and carried at market value.

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 2016.

3.     Dividends paid

		(Unaudited)	(Unaudited)	(Audited)
		Six months ended	Six months ended	Year ended
		31st March 2017	31st March 2016	30th September 2016
		£'000	£'000	£'000
	2016 Final dividend of 1.6p (2015: 1.8p)	1,178	1,350	1,350

No interim dividend has been declared in respect of the six months ended 31st March 2017 (2016: nil).

All dividends paid and declared in the period have been funded from the Revenue Reserve.

4.     (Loss)/return per share

		(Unaudited)	(Unaudited)	(Audited)
		Six months ended	Six months ended	Year ended
		31st March 2017	31st March 2016	30th September 2016
		£'000	£'000	£'000
	(Loss)/return per share is based on the following:
	Revenue (loss)/return	(834)	(1,170)	1,335
	Capital return	13,918	10,358	45,551
	Total return	13,084	9,188	46,886
	Weighted average number of shares in issue during the period/year	73,581,082	75,005,470	74,824,831
	Revenue (loss)/return per share	(1.13)p	(1.56)p	1.79p
	Capital return per share	18.92p	13.81p	60.87p
	Total return per share	17.79p	12.25p	62.66p

5.     Net asset value per share

		(Unaudited)	(Unaudited)	(Audited)
		Six months ended	Six months ended	Year ended
		31st March 2017	31st March 2016	30th September 2016
	Net assets (£'000)	189,282	143,770	179,795
	Number of shares in issue	72,928,162	75,005,470	74,074,935
	Net asset value per share	259.5p	191.7p	242.7p

6.     Fair valuation of investments

The fair value hierarchy disclosures required by FRS 102 are given below:

		(Unaudited) Six months ended 31st March 2017		(Unaudited) Six months ended 31st March 2016		(Audited) Year ended 30th September 2016
		Assets	Liabilities	Assets	Liabilities	Assets	Liabilities
		£'000	£'000	£'000	£'000	£'000	£'000
	Level 1	206,160	-	151,456	-	178,565	-
	Level 21	-	-	9,372	-	16,592	-
	Total	206,160	-	160,828	-	195,157	-

        ¹   Includes investments in participatory notes.

JPMORGAN ASSET MANAGEMENT (UK) LIMITED

ENDS

A copy of the half year will be submitted to the National Storage Mechanism and will shortly be available for inspection at www.morningstar.co.uk/uk/NSM

The half year will also shortly be available on the Company's website at www.jpmchinese.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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