CCB (2925) - A High Dividend Stock?

Company Background
Cycle & Carriage Bintang Berhad (CCB) is a main dealer of Mercedes-Benz. CCB used to be the exclusive Mercedes-Benz distributor. However, in year 2003 CCB ceased to be the exclusive distributor, and acquired 49% of DaimlerChrysler Malaysia (the new distributor for Mercedes-Benz in Malaysia, now known as Mercedes-Benz Malaysia Sdn Bhd (MBM)).

Dividend History
Dividend records in past 5 years from 2005-2009:


The total dividends per share given out in financial year 2006, 2008 and 2009 were RM2.13, RM1.45 and RM1.30 respectively. It is a lot and very impressive, isn't it??!! Total dividend of RM1.30 in FY2009 is translated to dividend yield of 30%++ based on current share price around RM4.30, which is way a lot more attractive than return from FD (merely 2-3%).

But.... wait.... the company only gave 15 sen and 10 sen of dividend in year 2005 and 2007. What had happened in 2006, 2008 and 2009 for the company to afford such a generous dividend payout? Lets delve into the financial data to find out the answer


Financial Data
EarningsFrom the yearly financial data above, the core business of CCB is not really profitable with very thin gross margin. In fact the company's earning have been supported mainly by incomes from investments such as dividend & sales incentives from MBM, and disposal of quoted securities/assets.

The following are some items that contributed significantly to the company's earnings:

1) FY2006 Quarter 4 -net gain of RM40million on disposal of six properties in Petaling Jaya, Selangor
2) FY2008 Quarter 2 - received premium of Rm18.7million from MBM

Besides, under the terms of agreement due to investment in MBM, CCB have been receiving net dividend of RM11million from MBM per annum. However, it is noted that this entitlement for dividend of RM11million is until December 2012. Thereafter there will be net dividend amount will be reviewed.

Price per Earning (PER)
Earning per share (EPS) is 27.92 sen for FY2009, this is translated to PER 15 at current share price of RM4.30. This is rather expensive given that the revenue does not grow over past few years.


Revenue Reserve
As of 4th quarter of FY2009, the reserve is about RM33million. In order to distribute more than RM1.00 of special dividend, the company would require more than RM100 million of reserve.


Dividend Prospect
At current level of reserve, it is insufficient for CCB to give special dividend of more than RM1/share for FY2009, unless there are more gains on disposal of valuable assets/properties.

Too high a hope may result in greater disappointments, the share price might go downhill once public realise CCB is no longer able to give generous special dividend.



Is CCB A High Dividend Stock?
I remember I have read an article which said that in order to be categorized as high dividend stock, a stock must meet the following criterias:

1. Dividend must be sustain or growth every year.
2. Dividend must be paid by company consistently for the past 10 years, 15 years or more.
3. Dividend paid out must be coming from the profits from core business. Not coming from selling of others assets.
4. Dividend paid out must not be coming from debts or loans.
5. Dividend yield at least 2 folds of current FD rate.

For CCB, it does not meet (2) and (3). Margin of core business is very thin. Source of income are from investment in MBM and disposal of properties/assets. Therefore, in my personal opinion, CCB is never a high dividend stock.

Note: The above opinion is not an invitation to buy or sell. It only serves as a blogging activity of my investment analysis and research.