To The Moon

While taking the same lift, my neighbour in his sixties stole a glance at me reviewing charts in Tiger App on my smartphone, and asked if I dabble in stock markets. I reply in affirmative and he invited me over to talk stocks and investment ideas over coffee. Found out he is quite an astute investor, and holds stocks that [might] huat big big! (Singlish for growth stock). But, he asked if I could recommend to him some chiong stocks (momentum stocks) in Singapore Exchange (SGX).

Decided to take up his challenge; and as he said “My England not so powderful” (command of English is not very good), I strive to share–with sprinkling of Singlish in italics (and English translation in bracket)–my recommendation with the next door Uncle.

I might be a tad lor sor (long-winded), so if where got time… (you’re busy…), just jump to the section(s) that interest you, k (ok)?

1. Chiong (Momentum) Stocks in STI

2. Lobangs (Opportunities) based on Fundamentals

3. Huat or Jialat (Profits or Losses) based on Financials

4. Steady Pom Pi Pi (Steady) based on Technicals

5. Garang or Kiasi (Aggressive or Conservative) Entries

1. Chiong (Momentum) Stocks in STI

Looking at the largest cap stocks that are part of the $Straits Times Index(STI.SI)$, the top three chiong (momentum) stocks in 2022 are Jardine Cycle & Carriage Limited (JC&C) $JARDINE CYCLE & CARRIAGE LTD(C07.SI)$, Sembcorp Industries $SEMBCORP INDUSTRIES LTD(U96.SI)$ and Keppel Corp $KEPPEL CORPORATION LIMITED(BN4.SI)$. While Sembcorp Industries (+40.80% y.t.d) and Keppel Corp (+32.69%) have been on a tear since the start of the year, benefitting from high energy prices, its momentum has slowed and price flattening out. JC&C stock price on the other hand has risen steadily and there might still be momentum for another leg up. Thus, I would investigate JC&C based on Fundamentals and Technicals, to see if it is worth a recommendation to the Uncle.

JC&C C07 versus Sembcorp Industries U96, Keppel Corp BN4 and STI Index

2. Lobangs (Opportunities) based on Fundamentals

Here’s what I have CSI (investigated) about C07:

A. Company Focus and Strategy

JC&C is the investment holding company of the Jardine Matheson Group in Southeast Asia (SEA). As a conglomerate operating in six SEA countries, it seeks to grow with the region but at a faster rate, by investing in market-leading businesses focusing on the twin themes of:

• Urbanisation: Today, half of SEA’s 681M populations live in cities. This is expected to increase to 70% by 2030, and will need to be supported by further infrastructure development, financial services, property, transportation, IT and communications. In tandem, the digital economy in SEA is also growing rapidly. In 2020, it generated US$100B and saw over 583M Internet users.
• Emerging consumer class: SEA’s GDP is expected to grow 5% annually (based on 2022 World Bank estimates) from US$3T in 2018 to US$4.5T in 2030, and be the fourth largest economy in the world by 2030. By then, 65% of the region’s population will be middle class, and their demand for more goods and services will need to be met.

JC&C aims to maximise opportunities for its group’s businesses, aligned with the two themes, by providing strategic input, planned capital allocation, collaboration and partnerships across its extensive network. It seeks to support businesses reach their potential with digital innovation expertise, and people and organisational design capabilities, to drive economic development and elevate communities in the region.

B. History

The company has long history of 123 years in South East Asia (SEA). It started as the Federal Stores in 1899 in Kuala Lumpur, Malaysia by the Chua brothers. From a sundries store to selling bicycles, motorcycles and motor vehicles as its namesake Cycle & Carriage, it has its ups and downs—through the Great Depression, two World Wars, Asian and Global Financial crises, global pandemics—but survived it did, and prospered. Its long association with Mercedes-Benz can be traced back to being the first to assemble Mercedes cars in Singapore, at its Hillview Avenue plant in 1965. It expanded regionally with a 31% stake of Astra group, Indonesia in 2000, and through more joint-ventures and acquisitions, now has businesses in six SEA countries including Singapore.

It got listed in the Stock Exchange of Malaysia and Singapore as early as 1969, and took its present name Jardine Cycle & Carriage (JC&C) in 2004, following integration into the Hong Kong headquarter-ed, Jardine Matheson Group. At US$8.48B today, it’s one of the 30 largest companies by market cap in SGX, and a constituent of the STI.

C. Operations and Business Segments

JC&C presence in SEA countries, and its holdings in companies, organised into three business segments across eight sectors. Sources: JC&C annual report and investors presentation Mar 2022

D. Opportunities

While JC&C organises its business into three segments, Astra, Direct Motor Interests and Other Strategic Interests, it is in automotive sector that it has a long history and experience, and it takes advantage of this through smart acquisitions and leading market share:

• Indonesia: Astra is the largest independent automotive group in Southeast Asia, has dealership of BMW, Lexus, Toyota, Daihatsu, Isuzu, Peugeot, UD Trucks, and Honda motorcycles. Tunas Ridean, the second largest automotive dealer in Indonesia, distributes BMW, Toyota, Daihatsu, Isuzu vehicles and Honda motorcycles.
• Vietnam: THACO Corporation, the largest automotive company in Vietnam manufactures, assembles, distributes, retails and provides aftersales service of commercial and passenger vehicles for BMW, Kia, Mazda, MINI, Peugeot, FOTON and FUSO.
• Singapore, Malaysia, Myanmar: Cycle & Carriage businesses in Singapore is the distributor of Mercedes-Benz, Mitsubishi, Kia, Citroën, DS Automobiles, Maxus vehicles and BYD electric forklifts, as well as retailing used cars under Republic Auto. In Malaysia, it is the leading dealer of Mercedes-Benz vehicles and Mitsubishi FUSO trucks, and in Myanmar, it has dealership of Mazda, Mercedes-Benz and FUSO vehicles.

With increasing urbanisation and rising consumer class, the need for automotive as means of transportation for people and goods is likely to continue, and growing strongly in SEA for years to come. This provides a sustained long term business opportunities for JC&C.

Astra, which JC&C has a controlling 50.1% stake, is its key driver of revenue and growth. The diversified group in Indonesia has seven core sectors, automotive, heavy equipment, agriculture, infrastructure, IT, property, and financial services. It is well positioned to tap the enormous business opportunities in digital transformation for Indonesia’s 279 million population, leveraging its automotive, IT and financial expertise and connections, with three digital services:

• MoXa mobile app offering suite of 25 services from motor and health insurance, financing for new and used vehicles, microloans and banking services
• AstraPay mobile app digital wallet and mobile cashless payment services
• halodoc as a digital platform connecting patients to the healthcare ecosystems of doctors, pharmacies, medical laboratories and health insurers. It was involved in Indonesia’s rollout of COVID-19 vaccination programme. Astra has invested US$35M in this HealthTech start-up.

Astra digital plays. source: Astra

E. Risks

There are three key risk areas that investors need to take note of for JC&C businesses:

• High Dependence on Investment in Astra: As a major contributor of the group’s earnings and significant proportion of its total assets, any adverse changes in Astra or political, economic or social situation in Indonesia would impact the group’s financials and capital. These could include changes in laws and policies or termination of licensing and distribution agreements with strategic partners, as well as supply chain disruptions It is also exposed to foreign currency fluctuations and depreciation of the Rupiah.
• Outbreak of Contagious or Virulent Diseases: Pandemic outbreak or spread of contagious diseases such as COVID-19, severe acute respiratory syndrome (SARS) and avian influenza may result in lockdowns or quarantine restrictions on the group’s employees, suppliers and customers, and limit access to the group’s facilities, products and services, and supply chain, affecting its ability to meet business targets.
• Competition, Economic Cycle, and Government Regulations: It faces competition in each of its business. If it is unable to compete successfully against its existing competitors or new entrants to the industries it operates, its business and results will be adversely affected. Its financial performance fluctuates with the economic cycle of the World and specifically SEA, as market forces and their resultant flow of investment capital can materially affect earnings and asset position. The group’s businesses are impacted by government regulations and policies in respective sectors and territories. For example, if it does not transit timely to low-carbon products and digital technology, it will not benefit from subsidy schemes and policy support in this area.

F. Employees & locations

Together with the Group's subsidiaries and associates, JC&C employs around 240,000 people across Singapore, Indonesia, Malaysia, Myanmar, Thailand and Vietnam.

G. Principal Executives

JC&C is helmed by Group Managing Director Benjamin Birks from UK, since 2019. He joined Jardine Matheson in 2000, in IT and outsourcing. Having held posts of CEO of Jardine International Motors, Zung Fu Group (distributor of Mercedes in HK and Macau), Commissioner of Astra and United Tractors Indonesia, and Director of Siam City Cement and Refrigeration Electrical Engineering Corporation, he has the business expertise and more importantly, first-hand experience with the group’s regional operations to lead the conglomerate. Two key executives positions held by Singaporeans are Group’s Business Development Director, Cheah Kim Teck and Group’s General Counsel, Chief Sustainability Officer and Company Secretary, Jeffery Tan.

JC&C Key Executives

3. Huat or Jialat (Profits or losses) based on Financials

A. Key Financial Metrics

Looking at the JC&C financials in Table below, it has revenue of US$17.688B in FY2021, a 34% increase y.o.y. Net profit rose 22% y.o.y to US$661M, certainly a huat (profitable) year despite the challenges from COVID-19 disruptions to its businesses and supply chain. In fact, it showed its resilience even when the pandemic was as its peak in FY2020 by remaining profitable. To give back value to shareholders, it declared a dividend of US$0.80 an 86% increase y.o.y.

Key Financial Metrics for Overall Group and Breakdown by the Three Business Segments. source: JC&C

The results also showed its outsized dependence on Astra, which accounted for US$654M (77.5%) of its underlying profit before costs. If this business segment is adversely affected, as detailed in the risks section above, it would be jialat (bad situation leading to losses) for JC&C.

B. Valuation and ROIC% vs WACC%

Comparing the valuation of JC&C versus Sembcorp Industries and Keppel Corp, we can see that JC&C is the most undervalued among the three at 53.9% below fair value using Discounted Cash Flow estimation methods.

Using one of Warren Buffett’s favourite metric on how well a company is utilising its investment capital, ROIC vs WACC%, again JC&C is the best and the only one with +0.7% difference, among the top three chiong stocks in STI currently.

Valuation of C07, U96 and BN4 source: Simply Wall St.; ROIC% – WACC% source: Guru Focus

4. Steady Pom Pi Pi (Steady) based on Technicals

Looking at longer term Weekly chart of C07 (see below), we can mark out three price zones that have acted steadily as support and resistance levels over the years back to 2008.

Weekly Chart JC&C C07

The lower red zone between $17.61 to 22.59 was where the price dropped to during the pandemic crash in 2020. With more positive outlook and reopening of economies in SEA from 2022, C07 price has broken out of this zone and now consolidating at the bottom of the middle blue zone from $29.43 to 35.63.

In three previous instances (marked by blue arrows), price then went on a muti-week steady uptrend that reached the upper part of this zone or beyond, to the next upper green zone of $41.61 to 47.24. Would we see a similar pattern repeating, the steady pom pi pi (steady) upwards price momentum, indicated by the green arrows in the coming weeks? Time will tell.

These historical data provides the basis for us to estimate more reliably possible long and short entries using lower time frame Daily chart.

5. Garang or Kiasi (Aggressive or Conservative) Entries

From Daily chart (see below):

• Bullish scenario: Garang (aggressive) Long entry would be to buy at current price, with first target at mid-point of the blue price zone $32.5 (+10.43%). A more kiasi (conservative) entry would be to enter Long after price exceeds $31. Medium term take profit target would be $35.63 (+21.07%) at the top of the blue price zone.
• Bearish scenario: Garang (aggressive) Short entry would be to sell at current price, with first target at 50MA $26.93 (–8.45%). A more kiasi (conservative) entry would be to Short with more confirmation, when price reaches below recent low, around $28. Medium term take profit target would be $22.66 (–23%) at the confluence of 200MA and the top of the lower red price zone. Price would likely bounce from this longer term support level.

Daily Chart JC&C C07

On balance, I would bet on continuing upwards momentum, and suggest the Singapore Uncle go Long on $JARDINE CYCLE & CARRIAGE LTD(C07.SI)$. Of course, price could gostan (reverse); in that case, he should have stop loss in place, and exit if the trade idea no longer works.

So there you have it, my recommendation for a Singapore stock that can chiong (rush or have momentum).

Hopefully, the Uncle would say "I see you very up" (worthy) rather than "CMI" (cannot make it).