Jardine Cycle & Carriage Ltd, major shareholder of Cycle Carriage Bintang has extended a privatisation offer of RM90.6m (or RM2.20/share) for the remaining 40.9%-stake through a selective capital reduction and repayment exercise. The privatisation exercise is a good opportunity for CCB’s shareholders to exit their investment. We deem the offer price of RM2.20/share attractive, considering that CCB is still loss making and likely to continue facing a challenging retailing environment in the next few years. We upgrade our TP and rating to reflect the privatisation offer.

Funding for the Privatisation Should Not be An Issue

Cycle & Carriage Bintang (CCB)’s 59.1%-shareholder, Jardine Cycle & Carriage Ltd (JCC) has proposed to undertake a selective capital reduction and repayment exercise (SCR) for the remaining 40.9% shares at RM2.20/share. The SCR will be funded by CCB through an advance from JCC, which will utilise both internal funds and external borrowings.

Rationale for the Offer

JCC cited that the proposed SCR will provide: -

1) an opportunity for the minority shareholders to exit and realise their investments – 70.5% premium to closing price of RM1.29/share.

2) CCB with greater flexibility in managing and developing the existing business without the regulatory costs and restrictions associated with being listed on Bursa Securities.

Offer Made Is Attractive, Minorities Should Accept

While the proposed SCR values CCB at 18% discount to its net asset of RM2.69/share (as at Sept-19), we think the offer price of RM2.20/share is attractive enough for minorities to accept the offer. Notably, CCB’s share price is at 10-year low, and without the offer, we see limited upside to CCB’s share price in the medium term, in view of CCB’s challenging business outlook, lacklustre earnings growth, and a weaker balance sheet. As such, we upgrade CCB to BUY rating (from Sell) with a target of RM2.20, which is on par to the JCC’s offer price

Source: Affin Hwang Research - 12 Nov 2019