Cycle & Carriage Bintang Bhd
(June 25, RM1.43)
Maintain sell with an unchanged target price (TP) of RM1.18: We maintain our “sell” rating on Cycle & Carriage Bintang Bhd (CCB) with an unchanged TP of RM1.18 based on 0.4 times financial year 2020 estimated (FY20E) book value.

 
We expect CCB’s profitability to remain under pressure due to: i) intense competition from other luxury brands (such as BMW); ii) competition from other Mercedes-Benz dealers; iii) higher capital expenditure and operating expenditure due to the building of the Sungei Besi outlet; and iv) aggressive marketing campaigns and promotions.

That said, the relatively higher margins from new model launches in 2019 to 2020 are estimated to help cushion some of the margin erosion.

We expect CCB to report a lower revenue for FY19 relative to the high base in FY18, when sales were boosted by a tax holiday.

For the cumulative first five months of 2019 (5M19), the total sales of Mercedes-Benz in Malaysia (by CCB and other dealers) slipped by 3.5% year-on-year (y-o-y) to 5,000 units.

Meanwhile, Mercedes-Benz’s main competitor BMW increased its 5M19 sales by 6.5% y-o-y to 4,600 units (including sales of the MINI). BMW has launched several new models (the BMW 3 Series, BMW 8 Series and BMW X5) in 2019.

To keep BMW at bay, Mercedes-Benz Malaysia (MBM) will be launching a fresh line-up of some 20 models in 2019.

Meanwhile, competition among authorised Mercedes-Benz dealers is also intense. CCB maintained its market share at 36% in 2018 (2017: 36%) but was unable to regain its crown as the top Mercedes-Benz dealer in Malaysia.

The group will continue to refurbish and expand its customer touchpoints nationwide to support MBM’s network development in alignment with Daimler AG’s global MAR2020 corporate identity standards.

Upside risks to our call include stronger-than-expected sales or profit margins as well as easing of competition among dealers. — Affin Hwang Capital, June 25