Half Yearly Report

RNS Number : 4754F

JPMorgan Chinese Inv Tst PLC

23 May 2013

 



LONDON STOCK EXCHANGE ANNOUNCEMENT

JPMORGAN CHINESE INVESTMENT TRUST PLC

UNAUDITED HALF YEAR RESULTS FOR THE SIX MONTHS ENDED

31ST MARCH 2013

Chairman's Statement

Performance

Following shareholders' approval at the 2013 Annual General Meeting ('AGM') of the continuation of the Company as an investment trust for a further five years, I am pleased to report that during the six months to 31st March 2013, the Company's return on net assets with net dividends reinvested increased by 17.9%. This was ahead of the return of the Company's benchmark, the MSCI Golden Dragon Index, which increased by 13.0% (in sterling terms). The total return to shareholders was 19.3%. The Investment Managers' Report provides further comments on the Company's performance and portfolio and market developments.

Loan Facility and Gearing

On 24th January 2013 the Company renewed its £20 million multi-currency credit facility with Scotiabank for a further 364 days, and £18.1 million was drawn down on this facility as at 31st March 2013. The Board has given the Investment Managers the flexibility to manage the gearing tactically within a range set by the Board of 10% net cash to 15% geared. During the period the Company's gearing ranged from 10% to 14% geared, ending the half year at 14% geared.

Share Issues and Repurchases in the Period

During the six months ended, the Company issued 12,257 new Ordinary shares following the exercise of Subscription shares for a total consideration of £20,592.

The Company repurchased 121,443 shares during the period at prices below the prevailing net asset value per share and holds them in Treasury in accordance with the Board's policy. The Company will re-issue shares held in Treasury only at a premium to NAV.   At the time of writing, the Company's issued share capital consists of 76,375,132 Ordinary shares, excluding shares held in Treasury.

Subscription Shares

As at 31st March 2013 there were 12,717,293 outstanding subscription shares. From 31st March up to and including the final date for the exercise of Subscription Share Rights by Subscription Shareholders, which was 15th May 2013, holders of a further 33,850 subscription shares elected to exercise their Subscription Share Rights. However, since the subscription shares expired 'out of the money', the majority of holders did not convert and, consequently, there were 12,683,443 outstanding subscription shares following the Final Exercise Date. A Final Subscription Trustee ('Trustee') has been appointed to act on behalf of those Subscription Shareholders who have not exercised their Subscription Share Rights. In accordance with the Subscription Share terms, the Trustee will have to decide within 14 days of the Final Exercise Date, such period expiring at the latest at close of business on 29th May 2013, whether or not to exercise the outstanding Subscription Share Rights.

Board of Directors

Mr John Misselbrook was appointed by shareholders at the AGM, having previously been appointed by the Board of the Company in July 2012, and has now assumed the responsibility as Chairman of the Audit Committee. All remaining Directors were also re-appointed by shareholders at the 2013 AGM having stood for annual re‑appointment in accordance with good corporate governance practice.

Outlook

In so much as the growth rates in China inevitably have slowed, the rebalancing of the economy from investment to consumption, as referred to in my annual statement, remains at the forefront of government policy under the new leadership as it puts in place the building blocks for sustainable economic growth. A sharp crackdown on corruption practices, cooling the property sector and tackling the pollution problems are also planks of the policy. This should be positive for the investment environment in the long‑term.

Hong Kong, as China's principal off-shore financial services centre, benefits from the momentum and will continue to do so as the role of the renminbi in world trade strengthens and Hong Kong's position as a financial services entrepôt for the currency is enhanced. Your Investment Managers have referred to the stock picking opportunities in Taiwan. As Taiwan economically intertwines increasingly with mainland China, we continue to believe in the advantages to our investment performance of Taiwanese exposure.

William Knight

Chairman                                                                                                                                                          23rd May 2013

Investment Managers' Report

Over the six month period ended 31st March 2013, the Company achieved a total return on net assets of +17.9% (in sterling terms), outperforming the Company's benchmark return of +13.0% by 4.9%.

Stock selection across all three Greater China markets contributed to the majority of the outperformance and the average gearing level of 12.0% also added to returns. In Taiwan, stock selection was strong within the technology sector (e.g. smart-phone supply chain related stocks), whereas in Hong Kong/China most of the returns came from favourable stock selection in financials (e.g. Chinese property counters) and consumer names (e.g. Macau gaming).

China Review

Chinese equities rose in the fourth quarter of 2012, with the offshore-listed Chinese market (MSCI China) leading domestic A-shares (CSI 300) again. MSCI China rose 12.8% quarter-on-quarter, after troughing in early September. Three months of better than expected economic data finally started pushing up the CSI 300 in early December, up almost 11% quarter-on-quarter. Cyclicals such as financials, property, commodity, industrials and discretionary led the market recovery, while defensives such as staples, healthcare and telecommunications lagged. On the economic front, the risk premium came down on better than expected data as well as greater hopes for reforms that would spur on sustainable economic growth after the successful conclusion of the National People's Congress of China held in mid November.

However, Chinese equities corrected in the first quarter of 2013 after the strong rally, on concerns of incremental policy tightening in China and rising sovereign debt risks in Europe. The offshore-listed Chinese market (MSCI China) dropped 4.4%, while domestic A-shares (CSI 300) dropped 1.1%. The People's Bank of China started mopping up liquidity through open market operations in February, after very strong January Total Social Financing ('TSF') of Rmb2.5Trn (vs. Rmb0.98Trn in January 2012) was extended. The anti-corruption campaign by the new leadership negatively affected consumption, with retail sales in January to February at 12.3% coming in below expectations. Earnings revisions have finally turned neutral after a negative trend throughout 2012.

China Outlook

We expect a mild recovery for the rest of 2013. We believe the earlier than expected incremental policy adjustments are unlikely to derail the macro recovery. The renewed property tightening, combined with monetary policy fine tuning, should prevent property prices appreciating too fast. The structural shortage of property in tier one and selected tier two cities will likely keep property fixed asset investment ('FAI') growing at double digits. Infrastructure FAI should re-accelerate, as evidenced by medium/ long-term loans rising to 70% of total new loans in February (vs. around 30% in mid 2012).

Worsening pollution issues may restrain construction activities selectively. The new leadership's anti-corruption campaign is needed for longer term growth sustainability, despite the near term negative impact on consumption. The market is trading at 9.3x forward one year price/earnings with 12% consensus earnings growth, which is undemanding, and the recent market correction and continued attractive valuations should support a better market for the rest of the year.

Hong Kong Review

Like China, Hong Kong equities continued to move up in the fourth quarter of 2012 owing to continued loose liquidity conditions and improving economic momentum, although it no longer outperformed the region partially due to unprecedented property tightening measures. While further property measures were generally anticipated, including the increased stamp duties for short-term transactions, the so-called buyer's stamp duty for non-local and corporate buyers surprised the market. Macau shares continued their recent rally as growth figures continued to strengthen during the quarter and the market largely shrugged off broader concerns about potential anti-corruption measures in China affecting high-roller volumes.

The year 2013 began with a continuation of the year-end rally in Hong Kong, but most of those gains were eroded as there were renewed concerns over the Eurozone crisis and concerns over both monetary and property tightening, coupled with anti-corruption efforts which weighed on the market in China. The Hong Kong government implemented further measures to dampen the property market, including the doubling of stamp duties and mortgage tightening. Macau shares proved to be volatile, with initial concerns over a weak February, but investors' fears were overcome as March came in at record levels with strong year-on-year growth.

Retail sales in Hong Kong also picked up momentum, with combined January to February increasing 15.8% year-on-year, faster than the 9.1% and 9.4% growth achieved in November and December, respectively.

Hong Kong Outlook

Macro economic risks ranging from the Eurozone crisis to avian flu in China, to the North Korea situation are starting to dominate investor focus. The property market in Hong Kong continues to grind down, with likely price weakness in the near term. However, share valuations have largely reflected this price weakness, especially for property developers. Meanwhile, retail and office property trends remain resilient. Macau gaming revenue momentum remains positive, despite concerns over anti-corruption policies and avian flu. With no new supply additions in the near future, continued top-line growth should translate into strong earnings growth and cash flow generation.

Taiwan Review

In the last three months of 2012 the TWSE Index edged down slightly, finishing the quarter down 0.2% in Taiwanese dollars. The Taiwanese market fell, initially driven by disappointment in the sales outlook for both Apple and Windows 8 related products. The PC and handset sectors saw downward revisions in guidance. The market managed to claw back most of the losses, cheered by optimism that the US fiscal cliff could be averted and suggestions by the Taiwanese government regarding stimulus measures to revive the market.

The Taiex was largely flat in USD terms in the first quarter of 2013, led by non-technology and financial sectors, while technology remained muted and underperformed slightly. With an improving demand/supply situation, commodity technology sectors like DRAM, TFT and LED performed well this quarter. Stocks within the low-end smart-phone supply chain continued to perform well. The rotational buying within non-technology sub-sectors remained solid with financials taking the spotlight. In anticipation of financial deregulation, momentum in the financial sector was led by a strong rally in insurance companies which also benefit from yield recovery and asset appreciation themes. However, concerns over China's cooling measures have weakened stocks in the steel, machinery, cement and property sectors over the quarter.

Taiwan Outlook

The Taiwanese market could be volatile in the near term, given new developments surrounding Korea, China's new leadership and avian flu. However, any pull back is likely to be mild as the market has yet to price in a potentially stronger outlook in the latter part of 2013. The Taiwanese economy should have troughed in the fourth quarter of 2012, while most technology companies should see revenues and earnings trough in the first quarter of 2013. Thus, any irrational correction would be a good buying opportunity. While technology should bottom in first quarter of 2013 on a seasonal basis, we believe the bulk of the technology recovery will occur in the latter part of 2013. Thus, interest in the technology sector is likely to be selective and in areas where visibility of earnings growth is clearer. The non-technology space has been seeing positive earnings revisions.

Summary

While the policy environment in all three markets remains in flux, we believe that the global economy will continue its recovery, while closer to home, China has already reached its inflection point in both fiscal and monetary policy. The 'bad news' of the earnings season is completed and as a result, we remain constructive on equity markets in Greater China.

Howard Wang

Emerson Yip

William Tong-

Shumin Huang-

Investment Managers                                                                                                                              23rd May 2013

 

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 and economic; 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 2012.

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, 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. For these reasons, they consider there is sufficient 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 the Accounting Standards Board's Statement 'Half-Yearly Financial Reports'; and

(ii)        the half year 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.

For and on behalf of the Board

William Knight

Chairman                                                                                                                                              23rd May 2013

For further information, please contact:

Lucy Dina

For and on behalf of

JPMorgan Asset Management (UK) 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

Income Statement

for the six months ended 31st March 2013

	(Unaudited) Six months ended 31st March 2013			(Unaudited) Six months ended 31st March 2012			(Audited) Year ended 30th September 2012
	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	-	22,765	22,765	-	14,095	14,095	-	12,133	12,133
Net foreign currency (losses)/gains	-	(1,010)	(1,010)	-	104	104	-	244	244
Income from investments	143	-	143	171	-	171	3,431	-	3,431
Gross return	143	21,755	21,898	171	14,199	14,370	3,431	12,377	15,808
Management fee	(629)	-	(629)	(539)	-	(539)	(1,095)	-	(1,095)
Performance fee writeback	-	(1,052)	(1,052)	-	-	-	-	-	-
Other administrative expenses	(267)	-	(267)	(232)	-	(232)	(451)	-	(451)
Net (loss)/return on ordinary activities before finance costs and taxation	(753)	20,703	19,950	(600)	14,199	13,599	1,885	12,377	14,262
Finance costs	(109)	-	(109)	(123)	-	(123)	(214)	-	(214)
Net (loss)/return on ordinary activities before taxation	(862)	20,703	19,841	(723)	14,199	13,476	1,671	12,377	14,048
Taxation	-	-	-	(1)	-	(1)	(358)	-	(358)
Net (loss)/return on ordinary activities after taxation	(862)	20,703	19,841	(724)	14,199	13,475	1,313	12,377	13,690
(Loss)/return per Ordinary share (note 4)	(1.13)p	27.04p	25.91p	(0.93)p	18.24p	17.31p	1.69p	15.90p	17.59p

All revenue and capital items in the above statement derive from continuing operations. No operations were acquired or discontinued in the period.

The 'Total' column of this statement is the profit and loss account of the Company and the 'Revenue' and 'Capital' columns represent supplementary information. The Total column represents all the information that is required to be disclosed in a Statement of Total Recognised Gains and Losses ('STRGL'). For this reason a STRGL has not been presented.

Reconciliation of Movements in Shareholders' Funds

	Called up		Exercised	Capital
Six months ended	share	Share	warrant	redemption	Other	Capital	Revenue
31st March 2013	capital	premium	reserve	reserve	reserve	reserves	reserve	Total
(Unaudited)	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
At 30th September 2012	19,595	13,129	3	581	37,392	39,709	1,811	112,220
Issue of Ordinary shares on exercise of Subscription shares	3	18	-	-	-	-	-	21
Repurchase of Ordinary shares into Treasury	-	-	-	-	-	(163)	-	(163)
Net return/(loss) on ordinary activities	-	-	-	-	-	20,703	(862)	19,841
Dividends appropriated in the period	-	-	-	-	-	-	(1,225)	(1,225)
At 31st March 2013	19,598	13,147	3	581	37,392	60,249	(276)	130,694

	Called up		Exercised	Capital
Six months ended	share	Share	warrant	redemption	Other	Capital	Revenue
31st March 2012	capital	premium	reserve	reserve	reserve	reserves	reserve	Total
(Unaudited)	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
At 30th September 2011	19,594	13,123	3	581	37,392	28,867	1,510	101,070
Issue of Ordinary shares on exercise of Subscription shares	-	4	-	-	-	-	-	4
Net return/(loss) on ordinary activities	-	-	-	-	-	14,199	(724)	13,475
Dividends appropriated in the period	-	-	-	-	-	-	(1,012)	(1,012)
At 31st March 2012	19,594	13,127	3	581	37,392	43,066	(226)	113,537

	Called up		Exercised	Capital
Year ended	share	Share	warrant	redemption	Other	Capital	Revenue
30th September 2012	capital	premium	reserve	reserve	reserve	reserves	reserve	Total
(Audited)	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
At 30th September 2011	19,594	13,123	3	581	37,392	28,867	1,510	101,070
Issue of Ordinary shares on exercise of Subscription shares	1	6	-	-	-	-	-	7
Repurchase of Ordinary shares into Treasury	-	-	-	-	-	(1,535)	-	(1,535)
Net return on ordinary activities	-	-	-	-	-	12,377	1,313	13,690
Dividends appropriated in the year	-	-	-	-	-	-	(1,012)	(1,012)
At 30th September 2012	19,595	13,129	3	581	37,392	39,709	1,811	112,220

Balance Sheet

at 31st March 2013

	(Unaudited)	(Unaudited)	(Audited)
	31st March 2013	31st March 2012	30th September 2012
	£'000	£'000	£'000
Fixed assets
Investments held at fair value through profit or loss:
China	78,141	69,251	65,652
Taiwan	37,233	32,347	30,435
Hong Kong	34,798	22,756	29,107
Total investments	150,172	124,354	125,194
Current assets
Debtors	372	633	138
Cash and short term deposits	83	522	691
	455	1,155	829
Creditors: amounts falling due within one year	(18,600)	(11,972)	(13,803)
Bank overdraft	(281)	-	-
Net current liabilities	(18,426)	(10,817)	(12,974)
Total assets less current liabilities	131,746	113,537	112,220
Provision for liabilities and charges
Performance fees	(1,052)	-	-
Net assets	130,694	113,537	112,220
Capital and reserves
Called up share capital	19,598	19,594	19,595
Share premium	13,147	13,127	13,129
Exercised warrant reserve	3	3	3
Capital redemption reserve	581	581	581
Other reserve	37,392	37,392	37,392
Capital reserves	60,249	43,066	39,709
Revenue reserve	(276)	(226)	1,811
Total equity shareholders' funds	130,694	113,537	112,220
Net asset value per Ordinary share - undiluted (note 5)	170.8p	145.8p	146.4p
Net asset value per Ordinary share - diluted (note 5)	170.4p	145.8p	146.4p

Cash Flow Statement

for the six months ended 31st March 2013

	(Unaudited)	(Unaudited)	(Audited)
	Six months ended	Six months ended	Year ended
	31st March 2013	31st March 2012	30th September 2012
	£'000	£'000	£'000
Net cash (outflow)/inflow from operating activities (note 6)	(818)	(730)	1,256
Net cash outflow from returns on investments and servicing of finance	(103)	(123)	(215)
Net cash outflow from capital expenditure and financial investment	(2,419)	(3,439)	(5,163)
Dividend paid	(1,225)	(1,012)	(1,012)
Net cash inflow from financing	3,653	3,162	3,166
Decrease in cash for the period	(912)	(2,142)	(1,968)
Reconciliation of net cash flow to movement in net debt
Net cash movement	(912)	(2,142)	(1,968)
Loans drawn down in the period	(5,249)	(3,158)	(3,239)
Exchange rate movements	(1,010)	105	244
Movement in net debt in the period	(7,171)	(5,195)	(4,963)
Net debt at the beginning of the period	(11,137)	(6,174)	(6,174)
Net debt at the end of the period	(18,308)	(11,369)	(11,137)
Represented by: Cash and short term deposits Bank overdraft	83 (281)	522 -	691 -
Debt falling due within one year	(18,110)	(11,891)	(11,828)
Net debt at the end of the period	(18,308)	(11,369)	(11,137)

Notes to the Accounts

for the six months ended 31st March 2013

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 2012 are extracted from the latest published accounts of the Company and do not constitute statutory accounts for that year. Those accounts have been delivered to the Registrar of Companies and included 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 accounts have been prepared in accordance with 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' issued in January 2009.

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

     The accounting policies applied to these half year accounts are consistent with those applied in the accounts for the year ended 30th September 2012.

3.  Dividend

		(Unaudited)	(Unaudited)	(Audited)
		Six months ended	Six months ended	Year ended
		31st March 2013	31st March 2012	30th September 2012
		£'000	£'000	£'000
	Final dividend paid in respect of the year ended 30th September 2012 of 1.6p (2011: 1.3p)	1,225	1,012	1,226

     No interim dividend has been declared in respect of the six months ended 31st March 2013 (2012: nil).

4.  (Loss)/return per Ordinary share

		(Unaudited)	(Unaudited)	(Audited)
		Six months ended	Six months ended	Year ended
		31st March 2013	31st March 2012	30th September 2012
		£'000	£'000	£'000
	(Loss)/return per Ordinary share is based on the following:
	Revenue (loss)/return	(862)	(724)	1,313
	Capital return	20,703	14,199	12,377
	Total return	19,841	13,475	13,690
	Weighted average number of Ordinary shares in issue during the period	76,569,011	77,865,142	77,848,220
	Revenue (loss)/return per Ordinary share	(1.13)p	(0.93)p	1.69p
	Capital return per Ordinary share	27.04p	18.24p	15.90p
	Total return per Ordinary share	25.91p	17.31p	17.59p

     The Subscription shares in issue have no dilutive effect on the above losses/returns per Ordinary share, as calculated in accordance with the requirements of Financial Reporting Standard 22: 'Earnings per share'.

5. Net asset value per Ordinary share

	(Unaudited)	(Unaudited)	(Audited)
	Six months ended	Six months ended	Year ended
	31st March 2013	31st March 2012	30th September 2012
Undiluted
Ordinary shareholders funds (£'000)	130,694	113,537	112,220
Number of Ordinary shares in issue	76,534,334	77,867,026	76,643,520
Net asset value per Ordinary share (pence)	170.8	145.8	146.4
Diluted
Ordinary shareholders funds assuming exercise of Subscription shares (£'000)	152,060	113,537	112,220
Number of Ordinary shares in issue	89,251,627	77,867,026	76,643,520
Net asset value per Ordinary share (pence)	170.4	145.8	146.4

     The diluted net asset value per Ordinary share assumes that all outstanding Subscription shares were converted into Ordinary shares at the period end. There was no dilution to the net asset value per Ordinary share at 31st March 2012 or 30th September 2012 as the net asset value per Ordinary shares as at these dates did not exceed the Subscription share exercise price of 168 pence per share.

6.  Reconciliation of net return on ordinary activities before finance costs and taxation to net cash (outflow)/inflow from operating activities

		(Unaudited)	(Unaudited)	(Audited)
		Six months ended	Six months ended	Year ended
		31st March 2013	31st March 2012	30th September 2012
		£'000	£'000	£'000
	Total return on ordinary activities before finance costs and taxation	19,950	13,599	14,262
	Less capital return before finance costs and taxation	(20,703)	(14,199)	(12,377)
	Scrip dividends received as income	-	-	(221)
	Decrease in accrued income	84	97	5
	(Increase)/decrease in other debtors	(21)	(16)	5
	(Decrease)/increase in accrued expenses	(128)	(56)	94
	Performance fee paid	-	(141)	(141)
	Overseas taxation	-	(14)	(371)
	Net cash (outflow)/inflow from operating activities	(818)	(730)	1,256

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 yearly report will shortly be submitted to the National Storage Mechanism and will be available for inspection at www.morningstar.co.uk/uk/NSM

The half yearly report will also 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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