How You Can Ride an Emerging Market Rebound with Jardine Cycle & Carriage Ltd

It has been all over the news in recent months that stocks in emerging markets have been under pressure. If you look at the MSCI Emerging Market Index, you will see it has fallen from 1,055 in April this year to 795 as of yesterday. That’s a 25% drop.

In fact, if you had pulled up a five-year chart of the index, it might shock you to know that it is trading at a price lower than what was recorded during the 2011 downturn.

Keeping all the above in mind, let’s look at a Singapore-listed company that has huge exposure to an emerging market and see how it is faring.

The company in question is Jardine Cycle & Carriage Ltd (SGX: C07) and it derived 91% of its revenue in 2014 from Indonesia primarily due to its 50.1% ownership of Astra International.

Astra is a conglomerate that is listed and based in Indonesia and it operates predominantly in the country. The bulk of its business lies in the automotive sector, though its fingers are also in many other pies such as financial services, heavy equipment & mining, agriculture, and more.  

Having such wide business interests in an emerging market like Indonesia, it should come as no surprise that Jardine Cycle & Carriage’s share price has dropped lately – a 17.5% decline year to date – with the rout in emerging market stocks.

Let us look at Jardine Cycle & Carriage’s financial fundamentals to see if it is at a bargain now. For this, we will be using four metrics: The price to earnings (P/E) ratio; price to book (P/B) ratio; net gearing; and dividend yield.

Jardine Cycle & Carriage has a trailing twelve months (TTM) earnings per share of US$2.00. This works out to S$2.80 at an exchange rate of US$1 to S$1.40. Based on the company’s current share price of S$33.86, this would imply a P/E ratio of 12.4.

Moving on to the P/B ratio, the company’s net asset value per share stood at US$12.38 as of 30 September 2015. This works out to S$17.33 (at the same exchange rate above), which gives a P/B ratio of 2.24. This seems to be on the high side if you look at it from a value investor’s perspective; however one has to keep in mind the potential growth of the company in the future.

Jardine Cycle & Carriage’s net gearing came in at 29% at the end of the third-quarter of 2015. It should be noted though, that the company’s non-financial services business had a net cash position of US$156 million. In other words, the firm’s businesses in areas outside of finance had more cash than debt to the tune of US$156 million – that’s a strong balance sheet.

Lastly, the company has consistently paid out dividends for many years going back to at least 2004. Based on 2014’s full year dividend payout of US$0.85 per share, which worked out to S$1.109 at previous exchange rates, this gives Jardine Cycle & Carriage’s shares a dividend yield of 3.3%. In the first-half of 2015, the company had paid out an interim dividend of US$0.18 per share, unchanged from a year ago.

Emerging markets carry the potential for long-term growth. But investors looking to invest should look for companies with healthy balance sheets. This would give them confidence that the companies they’ve picked can ride out any short-term fluctuations in the economic environment in emerging markets which are commonly observed.

For more investing analyses and important updates about the stock market, sign up for The Motley Fool Singapore's free weekly investing newsletter, Take Stock Singapore. Written by David Kuo, it can help you grow your wealth in the years ahead.

Like us on Facebook to follow our latest hot articles. The Motley Fool's purpose is to help the world invest, better.

The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Esjay does not owns shares in any companies mentioned above.