This article first appeared in The Edge Malaysia Weekly, on February 8 - 14, 2016

TOP executives of bus operator KBES Bhd are understood to be in talks with their counterparts from SAIC Motor Corp Ltd (formerly known as Shanghai Automotive Industry Corp) on the possibility of the Malaysian company assembling and distributing the latter’s commercial vehicles, sources say.

The talks are said to have been going on — and going well — since last year, says one of the sources.

“SAIC is in talks with more than one company, but KBES seems to stand out,” the source adds.

It was speculated previously that SAIC was in talks with Weststar Maxus Sdn Bhd, a company controlled by Tan Sri Syed Azman Syed Ibrahim, but how well these discussions are going is not known.

In May last year, SAIC was reported to be looking to invest with Weststar, taking a stake of up to 49% in a JV company as well as jointly establish an assembly plant here in a deal valued at some RM1 billion.

Officials of KBES were not available for comment on the possible tie-up with SAIC at the time of writing.

Sources say much of the negotiations for KBES has been handled by its new substantial shareholder, Datuk Che Azizuddin Che Ismail, who has 23.75% equity interest in the company — both directly and via his vehicle, Arca Corp Sdn Bhd.

Che Azizuddin first surfaced in KBES in August last year with a 5.17% stake. He has since increased his shareholding — buying over the controlling block of 17.79% from privately held Sani Zaleha Sdn Bhd at 50 sen per share, or RM11.21 million in total, in an off-market deal last month — making him the single largest shareholder in the company.

Sani Zaleha is controlled by KBES managing director Lau Chan Seng, who, at 70, could be looking to take things easy. Che Azizuddin is currently a non-independent non-executive director of KBES but could take on a more important role.

Interestingly, KBES has a wholly-owned subsidiary, Super Coach Assembly Plant Sdn Bhd, which is involved in the assembly and fabrication of bodies for buses and the provision of maintenance services from its operations base in Kamunting, Perak.

KBES, however, has been reporting losses. In the financial years of 2010 to 2014, the company only saw profits in one year — in FY2013, when it posted a net profit of RM2 million.

For the year just ended, KBES is likely to be in the red as well. It suffered a net loss of RM3.78 million on revenue of RM25.85 million in the nine months ended Sept 30, 2015.

As at end-September last year, the company had cash and bank balances of RM1.51 million, long-term debt of RM7.97 million and short-term borrowings of RM5.43 million. It had negative reserves of RM10.85 million, possibly a result of the accumulated losses, but shareholders’ funds were still in positive territory, at RM52.92 million.

KBES’ share price has gained more than 25% since end-November. The counter closed at 36.5 sen last Wednesday, giving the company a market capitalisation of RM46 million.

In contrast to KBES, SAIC is a giant. Last month, SAIC sold more than 625,000 vehicles, thanks largely to its tie-ups with General Motors, Volkswagen, Iveco and Volvo. Some of its brands include SAIC Maxus (vans) and Sunwin (buses), via an investment with Volvo. It also produces large trucks under SAIC-Iveco Hongyan Commercial Vehicle Co Ltd, and light buses and trucks under Naveco Ltd.

SAIC is a Fortune 500 company, currently ranked 60 in the world, and owns international brands such as LDV and MG of the UK. For the first six months of last year, the company, which is listed in Shanghai, registered a net profit of US$2.2 billion. It had a market capitalisation of almost US$31 billion last Wednesday.

SAIC has a manufacturing plant in Bangkok that is said to be looking to form a joint venture with General Motors to penetrate the Indonesian market. This tie-up with KBES, however, could be for Asean.

The question is whether Che Azizuddin can strike a deal with SAIC.

Che Azizuddin is known in transport circles. He was a substantial shareholder of haulage and transport company Konsortium Logistik Bhd, before selling his block to Ekuiti Nasional Bhd (Ekuinas) in October 2010.

He is understood to have had a falling out with Ekuinas and, in 2013, left Konsortium Logistik, where he had also been the CEO.

After exiting the company, Che Azizuddin took over another transport company, Arca Transline Sdn Bhd (formerly known as Warisan Movers Sdn Bhd). Arca Transline’s assets included a ship — MV Arca Emerald — used for transporting cars from Peninsular Malaysia to Sabah and Sarawak, but it is unclear if the company still operates the vessel.

Arca Transline also had lorries dedicated to transporting vehicles, and a fleet of hauliers and other smaller lorries.

Some of Arca Transline’s clients included national carmakers Proton Holdings Bhd and Perusahaan Otomobil Kedua Sdn Bhd.

Another of Che Azizuddin’s business is Aiman Motor Sdn Bhd, which deals in Suzuki, Subaru and Mazda vehicles.

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