Cycle & Carriage Bintang (CCB) reported a larger 2019 core net loss of RM30m (vs. 2018 core net loss of RM7m). The weaker performance was due to lower revenue (-24% yoy), shrinking margins and higher interest expense. We cease coverage on the stock due to a reallocation of resources. Our last recommendation was a BUY with a target price of RM2.20.

2019 Core Net Losses at RM30m; Results Above Expectation

CCB’s 2019 core net losses widened to RM30m (vs. 2018 core net loss of RM7m) due to weaker revenue (-24% yoy; -29% decline in MercedesBenz unit sales), an EBITDA margin of -1.0% (vs. 2018 EBITDA margin of 1.3%, due to a shift towards lower-priced models and higher operating costs) and higher interest expense, but this was partly cushioned by the dividend income of RM22.5m from the investment in Mercedes-Benz SB. Overall, the results came in above our expectations as we did not account for the final tranche of the dividend income of RM11.2m.

Sequentially Stronger Earnings

Stripping off the EIs, CCB recorded a 4Q19 core net profit of 3m (vs. 3Q19 core net loss of RM15m), driven by higher revenue (+9% qoq, due to a 30% qoq increase in Merc sales from year-end promotions), an improved 4Q19 EBITDA margin of 3% (vs 3Q19 EBITDA margin of -4.7%) and a RM11.2m dividend income from Mercedes-Benz SB. CCB recognised an impairment loss of RM27m on cancelled construction at the Sungai Besi site. CCB had decided not to proceed with the planned construction of the Sungai Besi land, considering the weaker consumer sentiment and delayed Bandar Malaysia development project.

Cease Coverage

Due to a reallocation of resources, we cease coverage on CCB. Our last call on the stock was a Buy with a target price of RM2.20, based on the privatisation offer of RM90.6m (or RM2.20/share).

Source: Affin Hwang Research - 28 Feb 2020