We’re coming to the end of 2013 in less than a month’s time, so it seems the time’s good for some reflection on how our local stock market has done. The most widely quoted benchmark we have here, the Straits Times Index (SGX: ^STI), closed 2012 at 3,167 points. Fast forward to 5 Dec 2013, and we see the index down 1.4% to 3,124 points. But while the broader market was flat for the year, not every one of the index’s 30 constituents was that lucky. Jardine Cycle & Carriage (SGX: C07), City Developments (SGX: C09), and CapitaLand…
We’re coming to the end of 2013 in less than a month’s time, so it seems the time’s good for some reflection on how our local stock market has done.
The most widely quoted benchmark we have here, the Straits Times Index (SGX: ^STI), closed 2012 at 3,167 points. Fast forward to 5 Dec 2013, and we see the index down 1.4% to 3,124 points.
But while the broader market was flat for the year, not every one of the index’s 30 constituents was that lucky. Jardine Cycle & Carriage (SGX: C07), City Developments (SGX: C09), and CapitaLand (SGX: C31) were the three worst shares within the STI in terms of share price returns.
|Company||31 Dec 2012||5 Dec 2013||% Change|
|Jardine Cycle & Carriage||S$48.15||S$34.42||-28.5%|
|Straits Times Index||3,167||3,124||-1.4%|
Source: S&P Capital IQ
1. Jardine Cycle and Carriage
The company’s main source of revenue and profits (more than 90% for both figures in 2012) stems from its 50% ownership of Indonesian conglomerate Astra, which has business activities in a wide range of industries.
By virtue of that fact, Jardine Cycle & Carriage’s long-term business value becomes intimately tethered to the economic well-being of Singapore’s southern neighbours.
It was just a month ago when the BBC reported that the Indonesian economy’s growth had slowed. Rising interest rates, a weakening rupiah, increasing consumer prices, and a widening current account deficit have all combined to hurt domestic consumption and impact growth, according to analysts polled by BBC for the report.
In addition, there’s also the 2014 general elections in Indonesia to contend with, which may negatively impact investors’ perception of risk toward investing in the country, according to Deputy Finance Minister Bambang Brodjonegoro.
Add two and two up, together with its poor financial numbers where profits for the nine months ended 30 Sep 2013 have dropped 19% year-on-year, and we can see why Jardine Cycle & Carriage’s shares have been battered this year
But it’s not all doom and gloom. Despite a slowdown in growth rates, the economy of Indonesia is in fact, still growing, though like what I’ve mentioned earlier, speed bumps has appeared on the country’s path to wealth.
2. City Developments
The company, which turned 50 this year, earns its keep from real estate development and investment; ownership and management of hotels; and provision of facilities management and hospitality solutions.
Over the nine months ended 30 Sep 2013, City Development’s profits totalled S$462m, some 8% higher than what it was a year ago. So, what could have caused this shift in investor’s perception to drive down its share price by more than 20% till date?
A look behind the curtains at City Development’s revenue sources might give us some clues. The bulk of the company’s revenue (60% and 57% in 2012 and 2011 respectively) comes from Singapore, where the company has developed more than 30,000 homes over the years.
In addition, it’s also one of our country’s biggest landlords, owning over 7.8m square feet of residential, industrial, office, retail, and hotel space.
This past year has seen some of the strongest property-cooling measures being implemented by Singapore’s government since 2009 and that could be a reason for the poor share price performance despite steady growth in profits so far.
In City Development’s third quarter earnings, the company commented that “the impacts of the accumulated property cooling measures [in Singapore] are beginning to show its true colours and bite”. It also warned of “continued headwinds” of various degrees in different sectors, but did stress that it is “confident that it will be able to deal with them to a certain extent, as it has weathered many of such similar storms in the past.”
Another real estate company makes the list. In a situation similar to City Development, CapitaLand saw some decent year-on-year growth in profits for the first nine months of 2013, as earnings went up 6% to S$707m. So, why the difference between corporate results and share price performance again?
It’s likely to do with the geographical origins of the company’s business. For the nine months ended 30 Sep 2013, China and Singapore combined accounted for more than three quarters of CapitaLand’s earnings before interest & taxes (EBIT). In particular, Singapore made up 43% of EBIT while China took up 34%.
As mentioned earlier, our property markets here in Singapore have been subjected to strong cooling measures, and CapitaLand did comment in its latest third quarter earnings that the measures “will continue to moderate the private residential market.”
Over in China, the company still sees a positive outlook for the property market, but perhaps the market’s also cognizant of headwinds coming from property cooling measures that have been implemented in major cities in the Asian giant.
Foolish Bottom Line
Can these shares get out of their funk in the coming year? No one has a working crystal ball to foresee short-term price movements. What investors can do instead is to ascertain for themselves, the long-term outlook for Indonesia’s economy, and China and Singapore’s property markets. That will likely give much better clues on whether Jardine Cycle & Carriage, City Development, and CapitaLand will still end up in the doghouse three to five years down the road.
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