Berjaya Auto assuages investor concerns

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This article first appeared in The Edge Malaysia Weekly, on April 11 - 17, 2016.


Automotive-Statistic_20_TEM1105_theedgemarketsBerjaya Auto Bhd’s Mazda is one of the few marques that registered growth last year and continued to do so in the first two months of 2016. Yet, its major shareholder Berjaya Corp Bhd — the flagship company of prominent tycoon Tan Sri Vincent Tan Chee Yioun — has divested more than 12% of its equity interest in the automotive company in the past four months.

A sell-down by a major shareholder usually does not sit well with the investing public but Berjaya Auto director Datuk Francis Lee Kok Chuan is unfazed.

It was “just a normal divestment” by Berjaya Corp without any hidden objective, he stresses. More importantly, Berjaya Corp will continue to work with Berjaya Auto to grow its business to its full potential, he adds.

“As a conglomerate, Berjaya Corp is always on the lookout for new businesses, for which it needs fresh funds. It can use the cash proceeds from selling its stake in Berjaya Auto to reinvest in other businesses. The company has been doing this in the past 15 to 20 years,” Lee, 56, tells The Edge.

Berjaya Auto is a distributor of Mazda vehicles and spare parts in Malaysia and the Philippines. It also assembles a selected range of models at the plant of its 29%-owned Inokom Corp Bhd in Kulim, Kedah.

Lee points out that in spite of selling its Berjaya Auto shares, Berjaya Corp remains the auto company’s single largest shareholder with a 21.89% stake. “When you have assets that you can monetise while still maintaining control over them, why not?” he asks.

Lee, who is also the CEO of Berjaya Food Bhd, was appointed to Berjaya Auto’s board in 2011.

To recap, since early last December, Berjaya Corp has offloaded some 140 million shares or more than a 12% stake in Berjaya Auto at undisclosed prices, paring its 34.28% stake by more than a third.

Meanwhile, Berjaya Auto’s shares have declined 1.8% year to date. They closed at RM2.10 last Friday, giving the company a market capitalisation of RM2.4 billion.

When contacted by The Edge, Berjaya Corp declined to comment on the matter.

Lee, meanwhile, would not speculate on when the selling will stop.

“That is beyond my call but I believe Berjaya Corp will maintain its current shareholding in Berjaya Auto as it will continue to work with us on growing this business in Malaysia,” he remarks.

“I think it is also important to note that most of our senior management have not sold any shares in the past 18 months. That’s because we still believe in this business and we want to grow Berjaya Auto to its full potential.”

Lee says he believes Berjaya Corp is still keen on the auto business. “Our founder, Tan Sri Vincent Tan, has been involved in the auto business since an early age. Therefore, he will always be somehow connected to it in Malaysia.”

Currently, Berjaya Auto CEO Datuk Seri Ben Yeoh Choon San has a 6.52% stake in the company while the Employees Provident Fund (EPF) has 6.64%. It is worth noting that Amanahraya Trustees Bhd-Amanah Saham Bumiputera, which emerged as a substantial shareholder in February, owns a 5.46% stake.

Lee observes that local institutional funds and insurance companies are “happily investing” in Berjaya Auto because the company is cash-rich and asset-light. “The way I see it, it [the selling] is actually an opportunity for institutional investors to pick up Berjaya Auto shares because they are very liquid now,” he says.

Commenting on the outlook for the company, Lee says Berjaya Auto is targeting a 10% to 15% growth in car sales in its financial year ending April 30, 2017 (FY2017).

The group is expected to close FY2016 with total vehicle sales of 19,500 units, of which 15,000 will be from Malaysia and the rest from the Philippines.

It is worth noting that total passenger car sales in the country had declined 17.3% year on year to 74,126 units in the first two months this year.

“I know the auto business is cyclical. It goes up and down. But as long as people want to drive, there is always demand in Malaysia. If you look at the past 40 to 50 years, most of the motor companies have evolved into conglomerates, so there is a business case for the automotive industry in this country,” comments Lee.

Berjaya Auto has only two completely knocked-down (CKD) models, namely Mazda 3 and CX-5, in its stable.

Moving forward, Lee says the company plans to assemble its third CKD model — the Mazda 6 — at the Inokom plant in the second half of this year. “It makes sense because the Mazda 6 is not available in Thailand now, so we plan to assemble the model here in Malaysia and export some of it.”

It is learnt that Berjaya Auto is also considering a CKD deal for the CX-3 but it has not reached an agreement with its principal yet.

As for completely built-up (CBU) models, Lee opines that the Mazda 2 and CX-5 will continue to be the volume drivers in FY2017, although there are three new models in the pipeline.

“We plan to bring in the Mazda 6 (2.2-litre turbo diesel engine) in the first half of this year. Meanwhile, we are still negotiating on the CX-5 (2.2-litre turbo diesel engine) and Mazda 2 (1.5-litre SkyActiv diesel engine). Most likely, they will be available in the second half of the year,” he says.

In the nine months to Jan 31, 2016, Berjaya Auto’s net profit fell 8.6% to RM146 million while revenue rose 12.2% to RM1.57 billion.