Jardine Cycle & Carriage: NEUTRAL - Downgrade (TP: S$11.18) - Outlook is less rosy

Sales of Komatsu equipment may decline in 2009. Overall Indonesian sales of heavy equipment vehicles may drop to 6,000 units in 2009, from an estimated 10,000 in 2008, as buyers face problems obtaining loans, and customers in the mining and plantation industries scrap expansion plans. Astra’s subsidiary in the Heavy Equipment business, United Tractors, which has a 45% market share, indicated in an announcement that it may also fail to reach its target of 4,750 units in 2008.

Plans to boost coal extraction capacity. United Tractors has also announced that it plans to spend US$315m to increase its coal extraction capacity, by 14% to 65m tons a year. It plans to add equipment to its coal mining services unit. This may somewhat offset the decline in its heavy equipment vehicles sales.

Motorcar sales continue to decline MoM. Overall Indonesian motorcar sales reached 47,000 units in November, up 2.6% YoY, but lower than the 54,810 units recorded in October. According to Astra, its November sales were 20,839 units.

Motorcycle sales improved slightly. Overall Indonesian motorcycle sales fell 4.4% YoY to 492,903 units in November, with Honda maintaining the lead with total sales of 230,544 units. This was slightly more than the 222,012 units achieved in October for Honda. Motorcycle unit sales for the first 11 months have already overshot the industry’s target of 5.8m units for 2008, and sales are expected to reach 6m units for the whole year. Automotive sales are expected to be lower in 2009,

We are lowering our target price for JC&C, as we adjust our valuation for its business units. Based on our SOTP valuation, we arrive at a target price of S$11.18, down from S$12.28 previously. This presents a marginal potential upside from current levels. Given the less rosy outlook for 2009, we are downgrading our recommendation to Neutral.

source:DMG

The Material provided above is for information only and does not constitute an offer or solicitation to purchase or sell the shares mentioned