Jardine C&C

An Astra boost
26 Sept 2008


It's among the top-traded stocks for the past few days. And for a company that Singaporeans know as the seller of Mercedes cars, Jardine C&C's business in Singapore is just the tip of the iceberg.

Jardine C&C's core is really PT Astra International, its Indonesian subsidiary that sells motorbikes, cars, palm oil, and mines coal. With the close connection between the two companies, it's no wonder that the performance of their stock prices is linked, too.

But let's look at the ratios to see if Jardine C&C is a value stock.

Despite its ratio of has a P/B of 2.99. That's really expensive and above our minimum P/B of 1. It gets a cross here.

Its P/E of 8.63 makes it cheap. It gets a tick here.

It gave a total dividend of 43 US cents for FY2007. This gives it a yield of 3.9%, above our minimum amount of 2%. This gets it a tick.

It has been keeping a positive cash flow of above S$1 bln for the past two years. For FY2007, it generated S$1.23 bln of cash compared to the S$1.25 bln it gained the year before. That gives it a free operating cash flow of S$312.6 mln.

For good cash flow management, it gets a tick.

We don't know much about management as the company directors are not people who love to hobnob with the media. But the Jardine companies have a good reputation for being well-run and steadily delivering results.

For track record alone, we give management a tick.

Its stock has been heavily traded over the past few days, but it has made only two announcements this month. One, made on 25 September, is that Malaysia's EPF Board, the country's version of our CPF, had raised its stake in the company from 6.626% to 6.635%.

The other announcement is about its subsidiary Astra increasing its shareholding in PT United Tractors from 58.45% to 58.54% as part of United Tractors' rights issue.

Other than that, we look to Astra, and Goldman Sachs, for more cues. Goldman Sachs on 3 September downgraded Jardine C&C to NEUTRAL from a BUY call. It thinks Astra's underperforming share price has made Jardine C&C more expensive.

But Goldman Sachs is positive about Astra in the long-term. It wrote in a note to clients on 23 September that it expects Astra's stock price to double within the next three years. The stock of the Indonesian company has fallen more than 30% this year.

This is because Astra is in the right place at the right time – it is meeting Indonesia's growing demand for cars and motorbikes. It is also in the country's booming commodity resources sector, mainly palm oil and coal mining.

That is sure to help Jardine C&C's turnover – Astra contributes over 80% of Jardine C&C's revenue. Astra has lot going for it (and so does Jardine C&C). Goldman Sach's downgrading of Jardine C&C is just a temporary call and shouldn't throw off value investors.

Reuters has an OUTPERFORM call on Jardine C&C with a price target of S$22.24.

Jardine C&C is one of the constituents of the Russell Singapore Value Index. It fell in the beginning of last week, but managed to reverse the slide and made gains on Thursday and Friday. It gained 1.7% to 1,577 on Thursday, 25 September.

As always please seek professional help before making any investment decisions.

By Tan Jin San Investor Central

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