Aggressive Jardine Cycle & Carriage eyes more acquisitions as near-term headwinds escalate

Astra International is still down on its luck.

Analysts note that Jardine Cycle & Carriage is gearing up for more acquisitions on back of the persistent weakness of its key revenue driver Astra International.

DBS analyst Paul Yong said that the group's recent US$768m rights issue shows that Jardine C&C could be gearing up for more acquisitions.

"We estimate that the rights issue (which will be fully subscribed by parent Jardine Strategic and underwritten by underwriters) will improve the Group’s net gearing from 0.85x at end-FY14 to 0.5x by end-2015F. This could then allow the Group to make more acquisitions (up to US$1.6bn if we assume a net gearing of 0.8x at end-2015F) to further grow and diversify its earnings stream," Yong said.

"However, given that Astra still accounts for c.90% of JC&C’s earnings and the former’s tepid outlook, we remain cautious on JC&C’s near-term prospects. At the same time, it would be interesting to keep an eye out for JC&C’s
next acquisition(s) and the potential impact of those on the Group," Yong cautioned.

Macquarie analyst Conrad Werner said that the prolonged headwinds bugging Astra will probably leave Jardine C&C with no choice but to diversify.

"With Astra facing prolonged headwinds, [there could be] more diversification from JCNC. The Jardine group has been more active on the M&A front in the last 12-18 months. JCNC management indicated that further such deals could be
possible in S/E Asia, as the group diversifies outside of its core S/E Asian autos and Astra exposures. The related uncertainty, coupled with ongoing headwinds at Astra itself, leave JCNC as the biggest blind spot within the group," Werner said.

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