Kim Eng on 29 June 2012
Background: Jardine Cycle & Carriage (JC&C) is an automotive conglomerate with an interest of just over 50% in Astra International. The latter is itself a large Indonesian conglomerate, whose core business activities span automotive, financial services, heavy equipment and mining. JC&C also has other motor interests in Singapore, Malaysia and Vietnam.
Why are we highlighting this stock? Investors have been pushing for more visibility on the stock, as it makes up a significant portion of the Straits Times Index. In addition, the recent 1:10 stock split of its subsidiary Astra International has given rise to the possibility of JC&C undergoing a stock split itself.
Trading at steep conglomerate discount. Jardine C&C trades at an average discount of 19% (Jan 2010 to-date) to its 50.1% holdings of Astra International, and this excludes its non-Astra businesses in Singapore, Malaysia, Indonesia and Vietnam.
Non-Astra businesses still profitable. JC&C’s non-Astra businesses in South-East Asia involve mainly automotive dealerships and after-sales services. While they are not very significant contributors to the group’s bottomline, they provide alternative avenues for growth and should not be ignored in a valuation model.
Stock split possible to improve liquidity. Astra International recently underwent a 1:10 stock split, which resulted in its stock becoming 10x more affordable and within reach of many more retail investors. As Astra is controlled by the Jardine group, we are not ruling out the possibility of JC&C undergoing a stock split as well to increase trading liquidity and counter the prohibitively high prices currently. If this eventuates, it will likely be a positive catalyst for the stock.
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