MENU

Is Jardine Cycle & Carriage Heading For More Challenging Times Ahead?

Jardine Cycle & Carriage (SGX: C07), which is part of the sprawling Jardine group of companies, derives most of its revenue and earnings from its 50.1% interest in Indonesian conglomerate PT Astra International, which happens to be the largest publicly-listed company in Indonesia.

In a piece of news that might concern Jardine Cycle & Carriage’s investors, Mr. Prijono Sugiarto, the President Director of Astra, warned that the Indonesian conglomerate might be facing more challenges ahead.

For investors of Jardine Strategic Holdings (SGX: J37) and Jardine Matheson Holdings (SGX: J36), this would also be pertinent news. That’s because Jardine Strategic owns roughly three-quarters of Jardine Cycle & Carriage while Jardine Matheson is in turn a three-quarter owner of Jardine Strategic. News for Jardine Cycle & Carriage would thus also be news for the other two.

Astra’s automotive segment

Astra is the main distributor for Toyota and Honda vehicles in Indonesia, two of the most popular brands in the country. The company is facing margin pressures due to the weakening of the Indonesian rupiah against most major currencies. For instance, the rupiah actually fell by 21% against the US dollar in 2013. If this continues, the company will have to raise the prices of its products. However, this is tricky because Indonesia is already suffering from inflationary pressures, which has led Sugiarto to be concerned about a slowdown in Indoesia’s economy.

Astra’s coal and palm oil segment

The coal and palm oil segment is also important for Astra as it now contributes about a third of its profits. However, both commodities are currently trading at low prices and it’s something almost entirely out of the control of Astra. If pricing pressure on the commodities would continue, the company might experience weaker performance from those two segments.

Jardine Cycle & Carriage and Astra’s share price performance

Despite the strong relationship between the operating results of Astra and Jardine Cycle & Carriage, their share price performance can differ quite significantly from each other, as seen in the table below regarding their year-to-date returns.

Share

Price: 1 January 2014 Price: 5 June 2014 % Change

Jardine Cycle & Carriage

S$35.95 S$44.56

24%

Astra International Rp6,800 Rp7,150

5%

Source: S&P Capital IQ

Jardine Cycle and Carriage has advanced by 24% so far this year while Astra has only achieved a mere 5% increase. This might be due to the different markets the two similar companies are trading in – Astra is traded on the Jakarta Stock Exchange while Jardine Cycle & Carriage is on the Mainboard exchange in Singapore.

From the table above, we might feel that Jardine Cycle & Carriage is the more overvalued share between the two due to its much higher advance as compared to Astra. However, if we view their share performances over a longer period, say over the last 5 years, the picture looks very different.

Share

Price: 5 June 2009 Price: 5 June 2014 % Change

Jardine Cycle & Carriage

S$17.60 S$44.56

153%

Astra International Rp2,415 Rp7,150

196%

Source: S&P Capital IQ

Over the past five years, Jardine Cycle & Carriage has underperformed Astra by more than 43% in total. Even after accounting for currency fluctuations over the 5 year period (the rupiah depreciated by 35% against the Singapore dollar), Astra has still outperformed Jardine Cycle & Carriage by close to 10%. Does that mean there is still value in Jardine Cycle and Carriage? We’ll find out about that together in the coming years.

Click here now for your FREE subscription to Take Stock Singapore, The Motley Fool's free investing newsletter. Written by David Kuo, Take Stock Singapore tells you exactly what's happening in today's markets, and shows how you can GROW your wealth in the years ahead.  

The Motley Fool's purpose is to help the world invest, better. Like us on Facebook  to keep up-to-date with our latest news and articles.

The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Stanley Lim doesn’t own shares in any companies mentioned.