Here’s A Deep Dive Into The Business Of Jardine Cycle & Carriage Limited

It has been more than 2 weeks since stock exchange operator Singapore Exchange Limited (SGX: S68) reduced the board lot size for the trading of shares in Singapore’s stock market.

And so far, it seems that Singapore Exchange’s seeing signs of success with the initiative with retail investors warming up to the new changes.

But, many retail investors might still not be familiar with companies with high stock prices given their lack of accessibility in the past.

Now that such companies have seen their shares become more affordable given the lot size reduction, it’s perhaps time for us to take a deeper dive into those highly-priced shares to better understand their business.

So, let’s get started with Jardine Cycle & Carriage Limited (SGX: C07), a share which has a hefty price tag of S$42.08 apiece currently.

The Indonesian conglomerate

Jardine Cycle & Carriage can be considered to be a conglomerate as it owns interests in a few listed and non-listed companies.

The company’s biggest and most important investment though, is its 50.1% stake in Astra International, a listed conglomerate in Indonesia. Underlying profits from Astra International routinely contributes 90% or more to Jardine Cycle & Carriage’s total bottom-line.

Astra International is the largest automotive company in Indonesia and is the main distributor in the country for automotive brands like Toyota, Daihatsu and Isuzu. The automotive business is Astra International’s main lifeblood, accounting for slightly more than half of the Indonesian conglomerate’s overall profit in 2013.

In accordance to its tag as a conglomerate, Astra International also has interests in financial services (through the Permata Bank), heavy equipment and mining (through United Tractors), agribusiness, information technology, infrastructure, and logistics.

Coming back to Jardine Cycle & Carriage, the company’s other interests include automotive distribution businesses across Southeast Asia which operate under the Cycle & Carriage banner. In particular, Cycle & Carriage is the main distributor for Mercedes Benz and Mitsubishi cars in Singapore and Malaysia.

The investing merits

So why might investors want to take a further look at Jardine Cycle & Carriage?

That’s because the company is operating in Indonesia, the largest market in Southeast Asia with a population that’s experiencing a rapid rise in the standard of living. Besides having strong economic tailwinds, the company’s also the largest automotive player in the country – it might not be easy for up-and-comers to unseat the incumbent.

Some risks to note

But, all investments will come with their own unique set of risks.

For the case of Jardine Cycle & Carriage, a key risk to note is the strength (or lack thereof) of the Indonesian rupiah. The company conducts most of its business using the rupiah (due to Astra International’s geographic location) but reports its financials in the U.S. dollar; over the past decade, the rupiah has been steadily depreciating against the U.S. dollar.

There is a real risk that even as the company grows in rupiah terms, growth might melt away once it’s translated into U.S. dollar terms, and then eventually Singapore dollar terms (since Jardine Cycle & Carriage’s shares are priced in Singapore dollars).

One other risk to keep in mind is Indonesia’s apparent shift toward protectionist policies. As Jardine Cycle & Carriage is still considered a foreign company in Indonesia, there is a threat that future policies in the country might not be favourable for the company.

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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 writer Stanley Lim doesn’t own shares in any companies mentioned.