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This Company Might Emerge as the Biggest Winner from Thailand’s Latest Political Crisis

Thailand might be better known for its idyllic beaches or incredibly tasty food, but for some, it’s also known as the “Detroit of the East” due to a bustling automobile manufacturing industry; in 2012, more than 2.48 million vehicles were manufactured in the country.

Although Detroit, which is famous for vehicle manufacturing in the USA, is no longer the city it used to be, Thailand – in particular, vehicle production – has been growing extremely well despite a series of floods and political crises that has happened since the turn of the last decade. Automobile manufacturers such as Ford Motors have even moved its Australian production activities to Thailand in 2012.

However, stress in the industry is starting to percolate in Thailand and Southeast Asia’s second largest automotive hub, Indonesia, is catching up fast. If the latest political crisis in Thailand is going to last for a long time, the country’s three largest automobile manufacturers, Toyota, Isuzu and Honda, might need to consider moving some of their production activities to somewhere else with a more stable outlook.

The relatively stable Indonesia

The most logical Southeast Asian market after Thailand for any automotive giant to shift their production over would have to be Indonesia. The country is already the second largest auto-hub in the region, as mentioned earlier, and it has a ready market of more than 200 million people who are steadily becoming a more affluent middle class.

Furthermore, Toyota already has sizable production activities in Indonesia. It might actually be just a matter of time before Indonesia takes over the title of “Detroit of the East” from Thailand. If that happens, which company might then be the greatest beneficiary of such a turn of events?

Jardine Cycle and Carriage (SGX: C07), with a 50.1%-stake, is actually the largest shareholder of Astra International, the leading automotive group in the country. Astra manufactures and distributes automotive-components and vehicles and its distribution-reach can be considered as second to none in Indonesia.

With Jardine Cycle and Carriage obtaining more than 90% of its earnings and revenue due to its interest in Astra, it’s a company that stands to benefit if Indonesia’s automobile manufacturing industry develops yet further due to problems in Thailand. In fact, if this development pans out, it will also be a boon for the conglomerate Jardine Strategic Holdings  (SGX: J37) due to its majority ownership of Jardine Cycle & Carriage (a 73% stake as of 20 March 2014). 

Foolish Summary

For any major business, one of the main requirements for prosperity is stability. If Thailand is unable to regain stability as a nation soon, it might see businesses moving away in search of a more stable region.

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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.