Cycling Downhill; Maintain SELL

Cycle & Carriage Bintang (CCB) reported a weak set of results – 3Q19 net loss widened to RM12.2m (largest net loss since 4Q17), impacted by lower revenue, shrinking margins and an absence of annual dividend income of RM11.2m. The results came in below our expectations. We cut our earnings forecasts and reduce our TP to RM0.96 (from RM1.04) based on 0.4x 2020E book value. We expect CCB’s profitability will remain under pressure on sluggish consumer demand and margin squeeze in the coming quarters. Reaffirm SELL.

Headline Losses Widened in 3Q19, Hit With a Double Whammy

Sequentially, CCB’s 3Q19 net losses widened to RM12.2m (2Q19 core net loss: RM11.6m) as CCB posted its: 1) lowest recorded revenue of RM259m (-39% yoy, -17% qoq; -33% decline in Merc sales) since 3Q14 and a 2) larger negative EBITDA margin of -4.7% (vs. negative EBITDA margin of -2.3% in 2Q19). 3Q19 margins were squeezed even further by: i) a shift to lower-margin product mix, ii) intense competition among luxury marques and Mercedes-Benz dealers and iii) higher operating expenses.

9M19 Core Net Loss at RM32.5m; Results Below Expectations

All in, CCB’s 9M19 core losses widened to RM32.5m (9M18 core net loss of RM8.9m), on the back of: 1) lower revenue (-29% yoy), 2) shrinking margins and 3) the absence of the annual dividend income. Recall, CCB lost the annual dividend income of RM11.2m after the disposal of the 49% stake in Mercedes-Benz Malaysia SB to Daimler AG. Overall, the results were below our expectations due to the weaker-than-expected MercedesBenz sales volume and EBITDA margins.

Cancels Sungai Besi Expansion Plans

CCB has decided not to proceed with the planned construction of the new Sungai Besi 3-S outlet, considering the softer consumer sentiment and the delayed Bandar Malaysia development project. There are no indicative plans for the Sungai Besi land at this juncture.

Source: Affin Hwang Research - 3 Nov 2019