Result Report

YTD 3Q FY17 revenue decreased 7.0% vs YTD 3Q FY16, whilst net profits decreased 83.9% over the same period. Profits were pinched by lower unit sales and lower margins. Competition for buyers is very stiff, and the cost to attract and acquire customers is thus higher. Look-ing ahead to 4Q FY 2017, management indicates that customer senti-ment remains cautious whilst competition will remain intense. Trading conditions are thus expected to remain challenging for the next few quarters. This cautious outlook accords with the sales slowdown seen in other brands such as Nissan; the point being buyers of even mid range cars have turned cautious.

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

Recommendation

We maintain our HOLD recommendation on Cycle & Carriage Bintang Berhad ("CCB") and reduce our fair value estimate to MYR 2.02. Though CCB has cash equivalents amounting to about 19% of the current share price, total debt to common equity is on the high side. In addition, man-agement intends to build another Autohaus costing about MYR 55 mn which is likely to crimp profits before it begins to generate a return on investment. Management indicates that conditions will remain challeng-ing for at least another quarter or two. On a brighter note, sales and service revenues will be enhanced on completion of the new Autohaus. 

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, distri-bution 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 after-sales service of Mercedes-Benz motor vehicles. The Company's sub-sidiaries are Ipoh Motors Sdn Berhad, Srisari Sdn. Bhd., Selecsama Sdn. Bhd. and Cycle & Carriage (Malaysia) Sdn Berhad.

Source: Wilson & York Securities Research - 6 Nov 2017