This article first appeared in The Edge Financial Daily on December 4, 2018

KUALA LUMPUR: Cycle & Carriage Bintang Bhd (C&C Bintang) is selling its 49% stake in Mercedes-Benz Malaysia Sdn Bhd (MBM) as Daimler AG had exercised its call option on the block of 66 million shares in MBM for RM66 million.

The stake sale will mean C&C Bintang will have one less income source — the dividend declared by MBM, moving forward. The news sent C&C Bintang shares 4.64% or nine sen lower yesterday at RM1.85 with a thin trading volume of 214,700 shares.

In a filing with Bursa Malaysia yesterday, the premium auto dealer announced that following Daimler AG’s call option, C&C Bintang will not be entitled to the annual dividend of approximately RM11.2 million from MBM after the stake sale.

For the nine-month financial period ended Sept 30, C&C Bintang’s net profit was RM19.3 million, more than tripled from RM6.01 million in the previous corresponding period. Revenue grew 16.5% to RM1.21 billion from RM1.04 billion previously, thanks to the tax holiday from June to August.

However, C&C Bintang saw a net loss of RM12.47 million for the financial year ended Dec 31, 2017 (FY17) compared to a net profit of RM38.4 million for the year before. The company received a dividend of RM11.22 million from MBM for the two financial years.

Revenue was down slightly to RM1.42 billion in FY17 against RM1.48 billion previously, partly due to sales of more lower margin models.

C&C Bintang reiterated the disposal will not “directly impact any of its trading operations, performance or the support of its customers”. The company said it remains a leading Mercedes-Benz dealer group in Malaysia, with 13 sales and aftersales facilities across the country.

C&C Bintang received a notice dated Nov 30 from Daimler AG concerning its call option. “The call option requires a written notice at least 12 months before C&C Bintang delivers the MBM shares to Daimler AG,” the company said.

“Upon the expiry of the notice on Nov 30, 2019, C&C Bintang shall deliver the MBM shares to Daimler AG. In return, Daimler AG shall pay C&C Bintang RM66.03 million for the total consideration of the MBM shares.”

C&C Bintang is not expected to have any gain or loss from the disposal. The proceeds from the disposal are expected to be used for working capital, repaying bank borrowings, network infrastructure and/or for such other purposes as deemed appropriate by the company, according to the Bursa filing.

C&C Bintang’s share price has been faring well for more than two years despite a record-breaking sale by MBM. The auto stock has halved from its peak of RM3.66 in February 2016 to RM1.85 yesterday, amid tough competition as Daimler AG has been increasing its dealers nationwide.