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Author: loginvest   |   Latest post: Fri, 1 Nov 2019, 8:38 AM

 

Cycle & Carriage Bintang Bhd - 3Q FY 2018 Results Report (HOLD)

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RESULTS REPORT

YTD 3Q FY18 revenue increased 16.5% vs YTD 3Q FY17, whilst Cycle & Carriage Bintang Berhad ("CCB") net profit increased more than 100% over the same period, lifted by MYR 9.8 mn insurance compensation and MYR 11.2 mn dividend income. Vehicle unit sales increased by more than 20% over the same period. Looking ahead to FY 2019, management indicates that customer sentiment remains cautious. Competition for buyers is very stiff and the cost to attract customers remains high. The shift to lower margin E, GLC and GLA-Classes and continued investment in customer service and the sales network may restrain margins. However, future profitability is likely to be improved in the following quarters as a result of these improvements to the business.

INVESTMENT RISKS

Risks to our recommendation and target price include: i) a reduction in demand for luxury cars, ii) a weaker MYR, which would increase parts costs, iii) higher interest rates, which would lead to higher monthly payments, and iv) continued intense competition among luxury car brands.

RECOMMENDATION

We maintain our HOLD recommendation on Cycle & Carriage Bintang Berhad (“CCB”) whilst maintaining our fair value estimate at MYR 2.02. Though CCB has cash equivalents amounting to about 18% of the current share price, total debt to common equity remains on the high side. Additional investment in sales and service centres is likely to crimp profits for a few more quarters. However, at some point this investment will pay off nicely. For now, management indicates that conditions will remain challenging for at least another quarter or two. Value investors will want to collect CCB shares in the MYR 1.50 - 2.00 range.

COMPANY PROFILE

Cycle & Carriage Bintang Berhad is primarily engaged in retailing of luxury motor vehicles, sales of spare parts and servicing of vehicles. The company operates in two segments: a) luxury car assembly, distribution and retailing and b) investment, via Mercedes-Benz Malaysia Sdn Bhd. Over the last two years, the investment segment has accounted for about 16-20% of operating results. It is the largest dealer of Mercedes-Benz vehicles in Malaysia and involved in the retail and aftersales service of Mercedes-Benz motor vehicles. The Company's subsidiaries are Ipoh Motors Sdn Berhad, Srisari Sdn. Bhd., Selecsama Sdn. Bhd. and Cycle & Carriage (Malaysia) Sdn Berhad.

Source: Wilson & York Securities Research - 2 Nov 2018

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