Jardine Cycle & Carriage - CGS-CIMB Research 2019-10-01: 120 Years In Southeast Asia


Jardine Cycle & Carriage - 120 Years In Southeast Asia

  • Jardine Cycle & Carriage (JC&C) is a Singapore-listed conglomerate that offers exposure to the Southeast Asian economies.
  • Jardine Cycle & Carriage derives the bulk of its core net profit before corporate costs (CNPBCC) from its 50.1% stake in Indonesia-listed Astra International.
  • Jardine Cycle & Carriage trades at a historical FY18 P/E of 10.0x and offers a historical dividend yield of 4.01%.

Jardine Cycle & Carriage Company background

Conglomerate with Southeast Asia exposure

  • JARDINE CYCLE & CARRIAGE LTD (SGX:C07) is a Singapore-listed company and a constituent stock on the Straits Times Index. Its presence in Southeast Asia dates back 120 years through its strategic interests in companies across the region. The group has a majority interest in Astra International (ASII IJ).
  • Jardine Cycle & Carriage also has presence in the automotive industry beyond Astra International, through its Direct Motor Interests operating in Singapore, Malaysia and Myanmar under the Cycle & Carriage brand, as well as through Tunas Ridean (TURI IJ) in Indonesia and Truong Hai Auto Corporation (Unlisted) in Vietnam.
  • The diversified businesses of the group include Other Strategic Interests in Siam City Cement (SCCC TB), Refrigeration Electrical Engineering Corporation (REE VN) and Vietnam Dairy Products (VNM VN, also known as Vinamilk).
  • Jardine Cycle & Carriage is 75%-owned by the JARDINE MATHESON GROUP (SGX:J36), a diversified business group focused principally on markets in Greater China and Southeast Asia.

Jardine Cycle & Carriage's Profit contributors

Astra International is the major earnings contributor

  • In FY18, Astra International was the largest earnings contributor for Jardine Cycle & Carriage. Astra International accounted for nearly 77% of its FY18 CNPBCC. Other Direct Motor Interests accounted for 15% of its FY18 CNPBCC, while Other Strategic Interests accounted for the remaining 8%.

Jardine Cycle & Carriage's Key investments

Astra International

  • Jardine Cycle & Carriage owns a 50.1% stake in Astra International whose businesses are in Indonesia. Astra International’s key operating segments are
    1. automotive,
    2. financial services,
    3. heavy equipment, mining, construction and energy,
    4. agribusiness,
    5. infrastructure and logistics,
    6. information technology, and
    7. property.

Direct Motor Interests

  • Within the Direct Motor Interests (DMI) segment, Vietnam is the largest profit contributor, followed by Singapore.
  • Jardine Cycle & Carriage owns a 25.3% stake in Truong Hai Auto Corporation. Truong Hai Auto manufactures, assembles, distributes, retails and provides aftersales service for commercial and passenger vehicles, representing BMW, MINI, Kia, Mazda, Peugeot, Foton and FUSO.
  • The Singapore automotive business is carried out via Jardine Cycle & Carriage’s 100%-owned subsidiary, Cycle & Carriage Singapore, which distributes, retails and provides aftersales service for Mercedes-Benz, Mitsubishi, Kia and Citroën vehicles.

Management’s Outlook

  • Jardine Cycle & Carriage is bullish on the long-term outlook for Southeast Asia. Management highlights that if Southeast Asia was a single country, it would be the fifth-largest economy in the world, with a combined GDP of US$2.9tr in 2018. Management also noted that ASEAN has forged free-trade agreements with partners outside the region, including Australia, China, India, Japan, New Zealand and South Korea In addition, there are also growth opportunities in intra-regional trade within Southeast Asia.
  • Management believes that rapid urbanisation, industrialisation and modernisation are boosting the ‘consuming class’, with incomes exceeding the level at which they can begin to make significant discretionary purchases. Management also believes that the rising middle class is set to elevate consumer aspirations and encourage more upmarket purchases. Management cited examples in Indonesia where they noted that new car sales grew 39% from 770,000 units in 2010 to 1.2m units in 2018.
  • In its 1H19 results commentary, Jardine Cycle & Carriage has guided that it is cautious on the outlook for 2H19. Management expects Astra International to continue to face a soft automotive market and commodity prices. Management also expects the group’s Direct Motor Interests to continue being affected by the challenging market conditions, but contributions from Other Strategic Interests are expected to be stable.

Jardine Cycle & Carriage's Historical valuations

William TNG CFA CGS-CIMB Research | https://www.cgs-cimb.com 2019-10-01
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