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Broker's take: DBS initiates coverage on Jardine Cycle & Carriage with ‘buy’

DBS Equity Research has initiated its coverage on conglomerate Jardine Cycle & Carriage (JCC) with a "buy" call and a target price of S$43.10, an almost 24 per cent upside on the stock's opening market price of S$34.8 on Friday.

In a morning note, DBS said JCC is a “South-east Asia proxy”, and offers unique exposure to South-east Asian economies and diversified industries.

Particularly through its 50.1 per cent stake in Astra International (Astra), the largest independent automotive group in South-east Asia, it is exposed to various diversified industries and has a strong regional automotive presence through its direct motor interests operating in Singapore, Malaysia, Myanmar and Vietnam.

Mainboard-listed JCC also offers exposure to Thailand and Vietnam through its other strategic interests.

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DBS remains positive on Indonesia’s longer-term outlook, and sees JCC as an inexpensive entry into Astra through its stake in the Indonesia-based conglomerate.

The brokerage has a "hold" call on Astra as it believes the positives have been priced in.

DBS sees JCC’s valuation as still attractive as JCC trades at a deep 25 per cent discount to its estimated value of holdings and at a 22 per cent discount to forward price to earnings ratio compared to Astra.

Potential catalysts for JCC include better-than-expected vehicle market share in Indonesia and higher commodity prices that would drive its commodities-related businesses.

On the other hand, JCC’s potential downside includes exposure to underlying economic and political risks and business regulations. As Astra contributes 80 per cent to JCC’s underlying profit, JCC is also affected by commodity prices, competition in Indonesia’s vehicle market and interest rates hikes.

JCC is subjected to US dollar and Indonesian rupiah forex volatility as it reports its earnings in US dollars.

DBS said its revenue and earnings assumptions are in US dollars, and might differ from consensus due to different forex assumptions.

As at 11.25am on Friday, JCC shares changed hands at S$35.8, up a dollar from its opening price.