Brokers’ take: Citi initiates ‘buy’ on Jardine C&C with S$29 price target

CITI Research initiated coverage on Jardine Cycle & Carriage : C07 0% (Jardine C&C) with a “buy” call, as the research house expressed optimism on the conglomerate’s investments in South-east Asia, particularly Vietnam.

The research house’s price target of S$29 represents a 25 per cent discount to an estimated FY2024 net asset value (NAV) of S$38.24 per share, which was derived from a sum-of-the-parts methodology and based on the stock’s historical average. 

In a report on Sunday (Apr 7), Citi’s research team highlighted Jardine C&C’s share price decline of about 30 per cent since May 2023, along with a widening of its discount to NAV to 36 per cent from 4 per cent. 

It therefore recommends that investors accumulate the stock at current levels, in view of the research house’s projections for the group’s net profit for FY2024 to FY2026 to increase by a compound annual growth rate of 7 per cent. 

While Citi believes the group’s holding company Astra remains its main profit driver, the research house said it also foresees profit contributions from the non-Astra businesses to increase to 26 per cent in FY2026 from 16 per cent in FY2023. 

This growth will be mainly driven by the group’s investments in Vietnam, which will be in part supported by Astra’s stability as the main profit contributor going forward. 

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Citi is especially positive on Jardine C&C’s investments in Vietnamese vehicle manufacturer Truong Hai Group Corporation (Thaco), which is estimated to contribute to 44 per cent of the profit growth. 

“We believe Thaco can ride on the agricultural tailwind with its increasing investment into the segment, as well as the recovery of its automotive segment on Vietnam’s middle-class expansion,” said the research house. 

Jardine C&C’s investments in Vietnam-listed Refrigeration Electrical Engineering Corporation (REE) is also expected to contribute to about 17 per cent of the growth in profit. 

Citi further expects REE to develop its renewable energy projects for future earnings growth, noting that it has a “steady” income stream from its office-leasing business.

“Jardine C&C has consistently delivered an attractive dividend yield, at around 6.6 per cent to investors, with a stable dividend payout of around 40 per cent,” added Citi.

“At the same time, the consistent profit contribution from Astra provides Jardine C&C with the financial stability to participate in Vietnam’s high-growth trajectory through holdings in market-leading companies like Thaco and REE.” 

Shares of Jardine C&C were trading up S$0.23 or 0.9 per cent at S$24.90, as at 3.40 pm on Monday.