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SCMP Reporter

OVER the past year, Singapore speculation on the future of the Jardine Group, controlled by the Keswick brothers, Henry and Simon, has focused on Cycle & Carriage.

The market remains sceptical about the Jardine Group's denials of any plans to increase the shareholding or inject assets into the company.

Analysts also say that any Jardine plans for Cycle & Carriage could be made by the company's other major shareholders - a Malaysian Government-linked institution and company together own 31.6 per cent of the company.

 The share closed the year at S$13.10 (about HK$70), up more than 50 per cent from the beginning of last year. At that price, the company is trading at a price-earnings ratio of a bit above 30 times.

Singapore analysts generally admire the company's management and business performance, but most say that the rating is too high in the absence of corporate restructuring or major investments in new business areas.

 Jardine Strategic Holdings bought a 16 per cent stake in Cycle & Carriage in December 1992 from the Kuwait Investment Office. In June 1993, Jardine Strategic increased its stake in the company to 23.6 per cent.

 Many Singaporean analysts believe the Jardine group would like to decrease its dependence on Hong Kong and China.

 The investment coincided with implementation of plans to delist in Hong Kong and move East Asian trading to a secondary listing in Singapore.

 The group derives about 15 per cent of net profits from Southeast Asia.

 However, if the group wanted its companies to gain a higher Singapore price-earnings ratio on the Stock Exchange of Singapore, it would have to expand business operations in the region, analysts said.

  Jardine Group spokesmen have repeatedly denied any plans to shift the group's focus away from China and Hong Kong.

  Cycle & Carriage's main businesses are car distribution, property development and retail food distribution. By all accounts, the company has been performing exceptionally well.

  Turnover in the first half of the last fiscal year to June was up 55.7 per cent to $1.3 billion compared with the six months to March 1993. Net profits were up 60.6 per cent to $61.5 million. In 1993, the company changed its year-end to December.

 Motor sales are Cycle & Carriage's primary business. They contributed 80 per cent of the company's earning's for the first half of last year. In Singapore, the company distributes cars for Mercedes-Benz, Mazda and Malaysia's national car company Proton.

  Edaran Otomobil Nasional (EON), the listed Malaysian Government-linked distributor of Proton, has a 20.1 per cent holdings in Cycle & Carriage.

  EON's major shareholder is Heavy Industries Co Malaysia (HICOM), and HICOM's major shareholder is the Malaysian Government.

  Proton is a pet project of Malaysian Prime Minister Mahathir Mohamad. Analysts say that any attempt by Jardines to increase control or change focus at Cycle & Carriage will have to take into account Malaysia's interests in maintaining Proton's distribution in Singapore.

  Malaysia's Employees Provident Fund (EPF), a compulsory savings scheme for workers, has an 11.5 per cent stake in Cycle & Carriage.

  Although the EPF is usually a passive investor, the pension fund has taken a more active interest in Cycle & Carriage.

 The chairman of the EPF is also chairman of the company, although the group managing director, Boon Yoon Chiang, a Jardines man, is widely viewed as the boss.

 Seventy per cent of the company's motor division sales come from the sale of Mercedes-Benz, which has close to a 10 per cent share of the Singapore motor market.

  Cycle & Carriage makes a $20,000 profit on each Mercedes sold and has a backlog of orders for one year, according to analysts' reports. The company also has a two-month backlog on the Proton Wira. Analysts, however, are sceptical about whether the company will be able to capitalise on the strong demand for cars in Singapore.

  The government rations the right to purchase cars though a vehicle quota system. Prospective car owners have paid as much as $100,000 for 10-year certificates of entitlement (COE), which are needed to purchase a car.

  Singapore's government has made it clear that it will limit growth in the issue of COE purchase in coming years. This would limit unit sales growth in cars to just three or four per cent a year, analysts said.

  As a result, most growth in Cycle & Carriage's Singaporean car distribution business could come from higher margins, made possible by artificial supply restrictions.

   Meanwhile, analysts see more growth potential in Cycle & Carriage's property division over the next three years. The division contributes 1.5 per cent of group profits.

 The group has major property interests in Singapore and Malaysia.

  Singaporean business is mostly carried out through Malayan Credit, which is 53 per cent-owned, while 78 per cent-owned Properties Holdings develops and owns properties in Malaysia and Singapore.

  Cycle & Carriage has two listed Malaysian subsidiaries - Cycle & Carriage Bintang, 49 per cent owned, which assembles and distributes Mercedes-Benz and Mazda cars in Malaysia and Cold Storage (Malaysia), 43 per cent owned, a retailer, food maker and property developer.

Most Singapore analysts, however are not excited by the company's Malaysian holdings. They term the total market capitalisation of the two companies, which is less than $800 million, as quite small.



Cycle & Carriage on path for rerating, say analysts