Cycle & Carriage Bintang Bhd

Hello folks,

This morning, I attended the 46th annual general meeting (AGM) of Cycle & Carriage Bintang Bhd at Concorde Hotel, Kuala Lumpur.

Of course, the press was not allowed into the meeting, and so I patiently waited outside for the meeting to last two hours later -- only to be told that the directors declined to answer any questions by the press.

And by the way, I am the only press that was present there.

Now, let's talk a bit about this company. Before I do that, let me make it loud and clear that I am writing this fairly without favouring any party. I shall only state relevant facts, and make fair comment.

After all, every public-listed companies are accountable to their shareholders, and it is the responsibility of a public company to maximize return to their shareholders.

Who is Cycle & Carriage Bintang Bhd (CCB)?

According to its website (www.ccb.com.my):

Today, CCB is still principally involved in retailing of Mercedes-Benz with unmatched record of new vehicle sales, servicingToday, CCB is still principally involved in retailing of Mercedes-Benz with unmatched record of new vehicle sales, servicing of vehicles and sales of vehicle parts & accessories via its wide network of dealership in Klang Valley, Ipoh,Penang and Johor Bahru. CCB captures over 40% of the market share for new vehicle sales and serviced close to 70% of the Mercedes-Benz sold in the market.

Who Owns CCB?

According to its Annual Report 2013 (page 75), there are two substantial shareholders:-

• Jardine Cycle & Carriage Ltd - 59.10%
• Employees Provident Fund - 6.54%

Financial Highlights

Let us have a look at its financial performance for the year 2013 -- this was announced on Feb 21, 2014 to Bursa Malaysia (and the financial information below is not meant to be exhaustive):-

Item/Year	2013	2012	Percentage Change
Revenue	RM 644.976 million	RM656.192 million	2%
Net profit attributable to shareholders	RM 4.238 million	RM 16.163 million	-74%
Earnings per share	4.21 sen	16.04 sen	-74%
Dividend per share	0 (nil)	5 sen	-100%

Source: Annual Report 2013

What can we gather from the above table? Allow me to summarize it for you:-

1. Revenue declined by 2%. If you look at the number presented, revenue is quite okay, I suppose. In the range of hundred millions. Good revenue there, compared to other company.
2. Net profit - this is the most worrying. Net profit plunged 74% to RM4.238 million, despite having more than half-a-million ringgit of revenue.
3. As net profit tumbled, so does the earnings per share.
4. And there is no dividend declared by the company for the financial year ended Dec 31, 2013.

What I See

Actually, what I think is irrelevant and immaterial because I do not have any share in this company. But if I am an investor, my biggest question is -- why has your performance dropped significantly?

To be fair, chairman Alexander Newbigging in the Annual Report 2013 attributed the poor performance to tough trading environment:

The Group experienced an extremely difficult trading environment in 2013. Competition in the crowded premium segment increased, leading to heavy discounting which had an adverse impact on profitability.

He also said that the sales of Mercedes-Benz affected the performance of the group:

The group's Mercedes-Benz passenger car unit sales were flat, although the A-class launched in June 2013 was well received by the market. The remainder of the Mercedes-Benz model range, however, faced severe challenges due to new competitive products and aggressive pricing in the market. The situation was aggravated by key Mercedes-Benz models approaching the end of their product life cycles. The group's after-sales service performed in line with expectations in 2013.

Burning Questions

I had some many burning questions to ask, but the management team was not available for comment as they had to rush to another meeting. I had no choice but to head for the office feeling unsatisfied. The burning questions are stated below:-

1. Last year, net profit declined 74% to RM4.24 million compared to RM16.2 million in 2012. Could you explain in detail the huge decline?
2. Dividends were also not declared for financial year 2013, and I sense that shareholders were not happy with this. Could you comment?
3. How will you be affected with the introduction of national automotive policy early this year?
4. With the goods and services tax slated to be introduced next year, how will that impact your business?
5. Going forward, what is your strategy and outlook?
6. How has Bank Negara's tightening measures for credit lending affected or will affect your company?

Expenses in 2013

I must commend this company because in their annual report, they are very transparent in what they spend.

Most companies don't really put their expenses in detail and they lump it all in one category because they do not want their competitor to know the details. Some of the expenses are detailed below (note that the list below is not meant to be exhaustive and complete):

Item/Year	2013 (RM million)	2012 (RM million)
Defined contribution pension plan	3,548	3,866
Salaries, bonuses and other employee benefits costs	32,193	29,953
Utilities	2,888	2,776
Demonstration car expenses	8,776	5,602
Repairs and maintenance	2,798	2,448
Security guard expenses	940	883
Auditor’s remuneration	346	318
Director’s remuneration	338	341

Source: Annual Report 2013, (page 51)

Share Price

The company is listed in the main market of Bursa Malaysia. The share price closed at RM2.37 today.
Below is the 5-year historical price chart:

(chart courtesy of Bursa Malaysia)

Sales of Mercedes-Benz Malaysia

CCB is a dealer for Mercedes-Benz in Malaysia and the CEO for Malaysian operations is Mr Roland Folger:

Mercedez-Benz Malaysia president and chief executive officer
Roland Folger
(photo courtesy of Mercedez-Benz Malaysia)

So, we might as well track the performance of Mercedes-Benz and then compare it with CCB.

In 2013, Mercedes-Benz sold a total of 8,082 units compared to 8,081 units in 2012.

In recently, in the first quarter of financial year 2013 (1QFY14), Mercedes-Benz recorded an overall of 22% growth in sales, with a total of 2,233 units sold. The breakdown is shown as follow:

Type	1QFY14 (units)	1QFY13 (units)	% Change
Passenger Vehicle	1,676	1,211	38.4%
Commercial Vehicle	31	34	-9%
FUSO (Mitsubishi)	526	582	10%
Total	2,233	1,827	22%

Source: Mercedes-Benz Malaysia press release dated April 10, 2014

Performance for 1QFY14

Today, CCB announced to Bursa Malaysia the results of its 1QFY14. Here are some salient data to be considered:

Item/Year	1QFY14	1QFY13
Revenue	RM 186.404 million	RM 175.976 million
Profit/(loss) before tax	RM 2.583 million	RM -527,000
Net profit	RM1.697 million	RM 81,000

Source: Bursa Malaysia

If you calculate, the growth in net profit is absolutely phenomenal -- 1,995%. That is a huge growth if you compare the performance of the first quarter this year with the same corresponding period in the previous year.

Chairman Alexander Newbigging said in a statement that its total vehicle sales jump 19%, without specifying exact figures. But his statement is true too because the growth in total sales of CCB is in line with the growth in total sales of Mercedes-Benz Malaysia

Now, we can see that the company is improving. On future prospect, the chairman further expects that the competition this year will remain intense, but CCB should reap some benefits with the introduction of new models later in the year:

Despite the improved start to the year, competition is expected to remain intense in the premium car segment. However, the remainder of the year should benefit from the launch of new models.