Jardine Cycle & Carriage (JCNC SP; “Jardine C&C”) is a holding company of the Jardine Matheson Group that focuses on consumer-related investments in Southeast Asia.
Most of Jardine C&C’s NAV comes from separately listed auto manufacturer and distributor Astra International (ASII IJ). Astra is the local partner of several Japanese auto brands in Indonesia and is involved in the manufacturing and distribution of cars and motorcycles. Astra’s relationships with Toyota, Daihatsu and Isuzu have become entrenched, and the parties seem satisfied with the status quo.
Jardine C&C also owns strategic investments in several other Southeast Asian businesses, including 10% of Vinamilk (the largest dairy producer in Vietnam), Refrigeration Electrical Engineering (a Vietnamese engineering firm), Siam City Cement (a Thai cement producer) and THACO (a Vietnam auto manufacturer and distributor).
The long-term growth potential of the Indonesian auto market is compelling. The government under President Jokowi is determined to build out the country’s road network. Indonesia’s car ownership rate is just 60 vehicles per 1,000 individuals compared to over 200 in China and 600 in Europe. I believe that we can expect single-digit volume growth for the foreseeable future.
After growing for multiple decades, the Indonesian auto market stagnated from 2015 to 2019. A key reason was a weak Indonesian economy in the wake of falling commodity prices and a weaker Rupiah. I do not believe we should extrapolate this recent trend. Several new government reforms, including the new Omnibus law, fundamentally improve Indonesia’s prospects of becoming a manufacturing economy. GDP per capita is likely to grow over time.
The second reason for weak auto sales is COVID-19. A weaker Rupiah initially caused affordability to plummet. The currency has since recovered. Auto financing volumes dropped as lenders stayed cautious in the face of higher non-performing loans. Consumer confidence remains weak.
It appears that the recent wave of COVID-19 (delta variant) peaked in July, with infection and hospitalisation rates now receding. A full recovery from COVID-19 may require mRNA vaccines but I believe that many emerging markets such as Indonesia will get access to them over the next year.
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