Logic Invest Research Blog

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


Cycle & Carriage Bintang Bhd 4Q FY 2018 Results Report (HOLD)

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YTD 4Q FY18 revenue increased 6.6% vs YTD 4Q 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. Looking ahead to FY 2019, management indicates that customer sentiment remains cautious. Competition for buy-ers 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. Manage-ment also indicates that MBM’s annual MYR 11.2 mn dividend will be discontinued in 2019. CCB will also receive a repayment of capital from MBM amounting to MYR 66 mn. With new models coming out in 2019, it is possible that CCB’s sales will be higher than our conservative forecast. 


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 pay-ments, and iv) continued intense competition among luxury car brands. 


We maintain our HOLD recommendation on Cycle & Carriage Bintang Berhad (“CCB”) whilst reducing our fair value estimate to MYR 1.62. Though CCB has cash equivalents amounting to about 30% of the cur-rent share price, total debt to common equity remains on the high side. Additional investment in sales and service centres is likely to crimp prof-its for a few more quarters. However, at some point this investment will generate a profit stream. For now, management indicates that conditions will remain challenging for at least another quarter or two. Value inves-tors will want to collect CCB shares in the MYR 1.10 - 1.30 range. 


1 Cycle & Carriage Bintang Berhad is primarily engaged in retailing of 2 luxury motor vehicles, sales of spare parts and servicing of vehicles. 3 The company operates in two segments: a) luxury car assembly, distri-4 bution and retailing and b) investment, via Mercedes-Benz Malaysia Sdn 5 Bhd (“MBM”). As above, CCB will cease to be a shareholder in MBM. CCB is the largest dealer of Mercedes-Benz vehicles in Malaysia and involved in the retail and after-sales service of Mercedes-Benz motor 12M vehicles. The Company's subsidiaries are Ipoh Motors Sdn Berhad, Srisari -22.9 Sdn. Bhd., Selecsama Sdn. Bhd. and Cycle & Carriage (Malaysia) Sdn Berhad.

Source: Wilson & York Securities Research - 26 Feb 2019

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