This article first appeared in The Edge Malaysia Weekly on January 7, 2019 - January 13, 2019

CYCLE & Carriage Bintang Bhd (CCB) could exit the retail operations of Mercedes-Benz cars in Malaysia and sell the business to Mercedes-Benz Malaysia Sdn Bhd (MBM). This could be seen as CCB downsizing its business and only selling spare parts and servicing Mercedes-Benz vehicles in Malaysia.

Two sources, albeit not from CCB, say they have heard of CCB’s plan but were unsure of the details.

“You are the second person to mention this (CCB selling its retail business to MBM). The news is circulating … I have heard about it, but am not sure of the mechanics,” one of the sources says. “But, yes, someone from CCB was saying this is a possibility.”

MBM is the brand custodian and distributor for Mercedes-Benz in Malaysia. Last month, CCB announced to Bursa Malaysia that it was selling its entire 49% stake in MBM to Daimler AG for RM66 million, after Daimler exercised a call option, which would, in turn, make MBM a wholly-owned unit of Daimler. However, the announcement indicated that the sale would only be concluded in 12 months or at the end of this year.

CCB has assured shareholders that there will be no impact from Daimler buying 49% of MBM, but it acknowledged that it would cease to receive an annual dividend of about RM11.2 million from the latter. However, at this juncture, it is not clear if CCB will conclude the sale of the retail operations to MBM only after the disposal of its stake to Daimler is concluded.

The Edge emailed questions to CCB on the possible sale of the retail business to MBM, but CCB skirted the main question of whether it was looking to exit the retail business.

CCB CEO Wilfrid Foo says, “The recent decision by Daimler to exercise its call option on the company’s holding in MBM will not impact CCB’s commitment or ability to continue delivering exceptional experiences to our customers across our nationwide dealerships in Malaysia. All dealerships will continue to provide quality sales and after-sales service in accordance with the strictest Mercedes-Benz quality standards supported by MBM.

“CCB has a long-standing relationship with Mercedes-Benz, for over 50 years, and wishes to reiterate that the disposal will not directly impact any of its trading operations, trading performance or its support of customers. CCB is a leading Mercedes-Benz dealer group in Malaysia with 13 sales and after-sales facilities across the country to serve Mercedes-Benz customers. We are committed to being the partner of choice of MBM and Mercedes-Benz customers alike, and will continue to work alongside MBM to grow the Mercedes-Benz brand in Malaysia’s luxury car segment.”

Nevertheless, automotive industry sources say Daimler does not normally get involved in sales, which raises the possibility of MBM flipping the Mercedes-Benz retail business, but this remains conjecture at press time.

Other companies involved in the retailing of Mercedes-Benz cars are Hap Seng Star Sdn Bhd, a wholly-owned unit of Hap Seng Consolidated Bhd; NZ Wheels Sdn Bhd, which is under the Naza group; and the Swire group.

A check on CCB’s annual report indicates that it has two retailing subsidiaries — Cycle & Carriage Bintang (Perak) Sdn Bhd and Cycle & Carriage Bintang (Northern) Sdn Bhd — both of which are wholly-owned units. Other than retailing, they also handle the sales of spare parts and the servicing of vehicles.

Apart from these two units, CCB also has Lowe Properties Sdn Bhd, which has a principal activity of renting premises. Other CCB companies — Srisari Sdn Bhd, Selecsama Sdn Bhd and Cycle & Carriage (M) Sdn Bhd — are dormant.

Checks with RAM Credit indicate that Cycle & Carriage Bintang (Perak) and Cycle & Carriage Bintang (Northern) are CCB’s main operating units. However, the financials of both companies have yet to be updated.

For FY2016 ended December, Cycle & Carriage Bintang (Northern) mustered an after-tax profit of RM4.12 million from RM287.22 million in sales.  And for FY2015 ended December, Cycle & Carriage Bintang (Perak) chalked up an after-tax profit of RM4.03 million on revenue of RM134.76 million. For the nine months ended September last year, CCB registered a net profit of RM19.31 million on the back of RM1.21 billion in revenue.

In its notes accompanying its financials, CCB says that last year, it received RM9.8 million in insurance compensation for damage suffered from floods in Penang in late 2017, and dividend income of RM11.2 million from MBM, which would indicate that CCB would have been in the red if not for the insurance compensation and dividend payment.

On its prospects, CCB says, “Whilst passenger vehicle sales performance has improved, the outlook for the remainder of the year remains cautious following the end of the tax exemption period, which benefited sales in the third quarter.”

CCB says sales for the nine months ended September last year, were 20% higher than in 2017, after benefiting from the zero-rating of the Goods and Services Tax from June to August.

A look at CCB’s 2017 annual report indicates that gross profit margins have been shrinking from 9.2% in 2015 to 8.8% in 2016 and 6.8% in 2017. The lower gross profit margin was a result of a change in sales mix in favour of lower-priced and lower-margin vehicles as well as higher discounts due to increased competition. CCB says that in 2017, it sold 56% fewer S-Class vehicles at reduced margins as the model reached the end of its product lifecycle.

CCB’s stock ended trading last Friday at RM1.52, giving it a market capitalisation of RM153.13 million. Since the announcement that it was selling its 49% stake in MBM, the stock has shed almost 22%.

CCB’s largest shareholder is Jardine Cycle & Carriage Ltd, with a 59.1% stake. Other notable shareholders include Chinchoo Investment Sdn Bhd, Key Development Sdn Bhd, Gan Teng Siew Realty Sdn Bhd, Mikdavid Sdn Bhd and Gemas Bahru Estates Sdn Bhd, which collectively have 5.29% equity interest and are all linked to Gan Boon Koo, one of the founders of Malayan Banking Bhd.

Another notable shareholder, with a 0.99% stake, is Koperasi Permodalan Felda Malaysia Bhd.

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