Jardine Cycle & Carriage

[karlmarx]

Hi karlmarx, thank you for sharing your thoughts on this. As usual, it is informative and thought provocating at the same time. There were more big contributors in VB in the past, but sadly many have gone dormant. You are one of the few left. Someone should compile all your long posts and publish as Karlmarx's Art of Investing or something, haha

Indeed Jardine C&C is a really complicated conglomerate and it is going to be hard to analyze.
I thought of adjusting its free cash flow by simply multiplying it by the profit attributable to shareholders divided by total profit, but maybe this is too rough to be useful. As you say, we don't know the free cash flow attributable to each segment (and thus the amount that belongs to minority interest)

I noticed Jardine C&C because it is trading at a historically low PB right now. The price dropped by about 25% from the recent peak of about 36 last July to 26+ now.

Q3 result in Nov shows -9% underlying profit while the latest full year result 2 days back shows a stable result. I am guessing the price correction is due the virus situation. Still the big correction appears overdone, considering Jardine C&C is not in the hospitality business. Could it be fears about secondary impact on commodity prices, or perhaps the Rupiah? I remember Jardine C&C was also badly affected in 2015 due to Rupiah devaluation.

That's more flattery than I can accept. 

Actually, you can tell there are a lot of smart people here, and they can contribute better stuff than I do. But since there is nothing to be gained from making the market more efficient -- by helping the market better understand the asset quality of whichever stock -- and much to be lost -- in terms of the contributor's competitive advantage and time, it is easy to understand why we don't see more/better contribution. 

If you look back at my earlier posts, you will see how inane and shallow they are. If anything, it should be evidence that anyone who wants to at least better understand businesses/valuation/investing can do so. And without paying exorbitant prices for crash courses where the quality of the teachers and their teachings are suspect, to begin with. If you're so easily sold by the course sellers, how do you expect to keep yourself safe from the owners/analysts who are trying to sell you their stocks, which are usually of suspect quality?

If anyone wants to do better as an investor, I highly encourage writing and posting your investment thoughts/thesis on VB. Depending on your luck, you may receive useful feedback, and be exposed to possible blind spots. 

===

Since JC&C is mostly exposed to the SEA consumer market, their fortunes will rise and fall with it. Since most of JC&C's business is in Indonesia, the devaluation of IDR will affect the results as it is reported in SGD or USD. So an investor in JC&C is really long Indonesia and IDR. 

For what it's worth, I don't believe Indonesia will transform into a manufacturing export power house like China -- even though that is what Jokowi is currently trying to do -- and so will not experience aggressive growth rates of 8-9%. This means that the government will likely continue to struggle with maintaining a budget surplus, and building its foreign reserves, which has traditionally made foreign investors wary (though there are a lot of other reasons as well).

But if the government is able to improve on its ability to collect tax (which is among the lowest in the world, not because of low tax rates, but because of tax evasion), improve on its manufacturing export numbers, receive adequate prices for their natural resource exports (which makes up the bulk of their economy and foreign earnings), and gradually wean the populace of fuel subsidies, the IDR should remain stable -- or at least avoid sharp devaluations -- over the long-term.

[weijian]

The price correction from $30 to $26 is likely due to virus and the statement from its Chairman/CEO after full year results. He mention challenging environment and virus will affect asean countries going into 2020. Also, its full year underlying profit was maintained by reduction in corporate costs. 


From $50 to $30 drop, a number of factors at play. 
1) Persistent low oil prices affecting palm oil prices. Astra palm oil subsidiary started making big losses. 
2) Subsidary THACO profit plunge by 30% due to intense competition when Vietnam opens up competition to foreigners. 
3) Astra motor division dominant market share reduced by competition for past few years. They have to lower prices to keep stamp their market share loss. Similar to Spore C&C motor division.
4) High debt and investors worry it might do a rights issue

The rights issue has been something I have been thinking about. Based on my checks, JCC did a rights issue in 2003 (141mil USD to pay for Astra) and the last one in June 2015 (772mil USD to pay for Siam City Cement). On hindsight, Astra's investment has returned many times over, while SCC is getting worst (to date).

For the latter, the SCC investment (615mil USD), announced in March 2015 was financed by a bridging loan and hence it wasn't too hard to anticipate that the rights issue came out 3 months later. 

As of current climate, JCC has spent huge amounts in last 3 years - 1.2bil on Vinamilk, 200mil on Toyota Motor and the latest is spending 168mil to participate in THACO's share placement - There is more than a billion of current debt on the company level since 2017. Since debt is been listed as "current", it means that they have been doing bridging loans on a yearly basis?

JCC pay up their dividends to their parent (75% of it) and so it is pretty generous, ~300mil plus per year. As a result, there isn't much retained earnings to finance the current acquisitions of the last 3 years. When the time is ready, Parent has to folk out the money in a rights issue - not an issue of "might do" but "when". But it is tricky to try to anticipate "when". Maybe more work has to be done on observing the Parent to gauge their readiness to have a better clue.

[Bibi]

Hmm. I didnt know C&C did a rights issue in 2003. Its history and milestones also didnt mention the 2003 rights.

https://www.jcclgroup.com/about/history-milestones/

C&C looks cheap to me now. Current PB is 0.56. Historical low PB was 0.39 during the 2009 recession. So i guess, using historical data as a guide, it might go as low as to $18.

2015 rights issue ratio is 1:9.

Will be invested if price continues dropping.

[gzbkel]

The NAV per share is 17.3 USD at FY19 end. Taking last closing price of 26 SGD and current exchange rate, shouldn't PB be ~1.09?

[donmihaihai]

Ya PB just above 1.

Rather than macro level of SEA or Indonesia. The real question to ask is whether jardine C & C or astra have lost their way. That were times where astra was able to generate same or if not more profit with less equity. Over the years retained and reinvested profits increased but earnings either remain at same level or dropped. ROE tell the whole story. Was mid 20s and now half of that just above 10%.

If neither jardine c & c and astra have lost their ways ie current ROE is temporary then buying at BV is very cheap. If not one has to determine what kind of animal jardine C & C will be in the future

[Bibi]

The NAV per share is 17.3 USD at FY19 end. Taking last closing price of 26 SGD and current exchange rate, shouldn't PB be ~1.09?

Ah yes. You were right. I have wrongly used the consolidated balance sheet total equity value including the non controlling interest to calculate the PB.

[weijian]

@gzbkel, i thought it might not be very useful to use book value to gauge JCC's relative attractiveness in terms of price, since it is a holding company, and alot of its investments/associates/Astra subsidary are recorded at cost. That said, SOTP is also not really good because I do not think JCC would break up...nonetheless, I thought it is probably the closest way to do so.

@Bibi, the 2003 rights was recorded in my own JCC notes. I probably got it from AR2003 (records show that i downloaded it in 2015)
I just did a google search and here you are:
https://www.valuebuddies.com/thread-4400...#pid115886
https://sginvestors.io/sgx/stock/c07-jar...ate-action

@donmihaihai,
- Automobile retailing isn't really a capital intensive biz, isn't it? That said, Bank Permata has had 5 right issues since 2010 - something isn't quite right over there - even an outsider like me can safely conclude.
- A large portion of Astra's business is linked to commodities (China and Oil) and it is ept to say that Astra has suffered a similar manner to our own Keppel Corp/SembMarine, with regards to boom in early part of 2010s and crash in 2015.
- I think moving forward, JCC (or Astra) will probably remain in the "10s in terms of ROE"...that is, unless some of its other SEA business hits gold (like it did on Astra)

[specuvestor]

Hmm. I didnt know C&C did a rights issue in 2003. Its history and milestones also didnt mention the 2003 rights.

https://www.jcclgroup.com/about/history-milestones/

C&C looks cheap to me now. Current PB is 0.56. Historical low PB was 0.39 during the 2009 recession. So i guess, using historical data as a guide, it might go as low as to $18.

2015 rights issue ratio is 1:9.

Will be invested if price continues dropping.

I didn’t check the actual date but off the top of my head WeiJian is right there about around that time. There was a major restructuring of Jardine subsi during that period including MCL as well; during this time Astra also did rights issue and CNC controlled Astra at the end, all these over stretch of 5 years or so

From a sleepy conglomerate Jardine stables became institutional stock during that time. Since then it has fallen asleep again because OPMI return is probably not in the HK Taipan’s main considerations

[Bibi]

Thanks Weijian and Specuvestor for the info.

[donmihaihai]

@donmihaihai,
- Automobile retailing isn't really a capital intensive biz, isn't it? That said, Bank Permata has had 5 right issues since 2010 - something isn't quite right over there - even an outsider like me can safely conclude.
- A large portion of Astra's business is linked to commodities (China and Oil) and it is ept to say that Astra has suffered a similar manner to our own Keppel Corp/SembMarine, with regards to boom in early part of 2010s and crash in 2015.
- I think moving forward, JCC (or Astra) will probably remain in the "10s in terms of ROE"...that is, unless some of its other SEA business hits gold (like it did on Astra)

Actually I am out of touch with JCC for like 2 to 3 yrs. Lot of annual reports(40 to 50 maybe) to catch up.

ROE in 10s is actually not that bad. About the same as local 3 banks. The problem is JCC ROE was in 20s. Assuming Capex needs for maintaining current operation is the same, a co with ROE of 20s worth 3X that of a co with ROE of 10s. Expectation of JCC or Jardine Group dropped over the years.

While not exacting the same as Keppel Corp/ Sembmarine, Astra does has sizeable palm plantation, mines and supporting industries and Indonesia generate much income from commodities. With that Astra still generate ROE of mid 10s in FY19. It does own some good businesses in Indonesia.