SINGAPORE (Feb 14): The automotive market in Malaysia has seen four consecutive years of growth since 2016, according to data from the Malaysian Automotive Association (MAA). Wong Cheong Chee, executive chairman and CEO of MeGroup, a Singapore-listed Malaysian car dealer, expects to roll along with this growth trend.
Besides running car dealerships, MeGroup is also involved in the manufacturing of noise, vibration and harshness (NVH) and non-NVH components for the automotive industry. The parts made by MeGroup include those that go into a car’s ceiling, dashboard, hood, boot, as well as parcel trays and board assembly decks.
Main image: In April 2019, MeGroup renewed its Mazda 4S dealership with Bermaz Motor Trading for a further three years until March 2022
The dealership business comprises several 3S and 4S automobile dealerships for the sale of new automobiles. The group currently owns and operates nine dealership outlets under six brands – Ford, Honda, Hyundai, Mazda, Mitsubishi and Peugeot. The 3S dealership outlets comprise a showroom, service centre and spare part centre. As for 4S, it is an extension of a 3S dealership with additional body collision repair and insurance claim services.
The combination of manufacturing and dealership gives MeGroup the additional “engine power” to capture a bigger piece of the overall car market in Malaysia.
Wong (sitting) with his children: (standing, from left) Sai Hou, Keat Yee and Sai Keat
Wong has roped in all three of his children, to help him run and grow the company. Daughter Keat Yee serves as the executive director of the company and head of operations of the group’s manufacturing business. Sai Keat, one of his two sons, is the head of engineering and R&D of MeGroup’s manufacturing business, while the other son, Sai Hou, is the head of group expansion and strategy, as well as the head of the group’s dealership business.
Unlike dealers which specialise in just one business, MeGroup has built a tighter-than-usual relationship with car brands such as Honda and Mazda. Apart from distributing the two car brands, MeGroup’s manufacturing arm makes parts that are sold to the two Japanese carmakers.
Smoothing out speed bumps
In its latest results for 1HFY2020 ended Sept 30, 2019, MeGroup recorded a 25.2% y-o-y fall in earnings to RM2.0 million ($0.67 million) from RM2.7 million in 1HFY2019. This was mainly due to higher finance, administrative, as well as selling and distribution expenses during the period.
However, revenue was 27.6% higher y-o-y at RM144.5 million, with both of the group’s business segments showing growth. Its manufacturing business increased by about RM0.8 million to RM18.5 million in 1HFY2020, due to an increase in demand of NVH components supplied and new production of NVH components from existing customers.
On the other hand, the dealership business saw a RM30.5 million increase to RM126.0 million, largely due to the additional revenue from the group’s Honda dealership in Kuala Selangor which commenced operations in January 2019.
In 1HFY2020, MeGroup declared an interim dividend of 0.17 sen per share along with a special dividend of 0.76 sen per share. This represents an aggregate payout ratio of 54.9% of the group’s earnings for the period.
In an interview with The Edge Singapore at the company’s Mazda dealership outlet in Kuala Lumpur, Wong explains that while MeGroup places equal emphasis on both of its businesses, it takes more time for manufacturing to grow compared to the dealership business. “Manufacturing business requires a lot of investment in equipment and technology. As for the dealership business, expansion is just about opening a new outlet. It is much easier to grow,” he explains.
However, the manufacturing business made up for its slower growth with higher margins compared to distribution. For 1HFY2020, gross profit margin of the group’s manufacturing business was 27.3%, while that of the dealership business was 6.8%.
Manufacturing’s gross profit margin of 27.3% was 2.1 percentage points lower than 29.4% in 1HFY2019, because of lower gross profit margin from the sales of NVH components from the new car models, compared to higher gross profit margin from the sales of NVH components from the phased-out model.
On the other hand, the dealership business’s gross profit margin of 6.8% was a 0.6 percentage point increase from 6.2% in 1HFY2019. This was largely due to the increase in revenue from after-sales automobile services being greater than the increase in revenue contributed from the sales of automobiles, as the sales of automobiles generally have a lower gross profit margin compared to after-sales automobile services. “The after-sales services and the 4S centres have better margins than the sales. The sales front is very competitive,” says Wong.
Driving the Malaysian market
In 2019, Malaysia’s passenger car sales saw moderate growth, with 550,179 passenger vehicles sold, compared to 533,202 sold in 2018, according to MAA data.
Wong says the primary mode of transport in Malaysia will continue to be cars, despite new modes of public transport being introduced and ride-hailing apps, such as Grab, gaining popularity.
“Unfortunately, Malaysia’s public transport is not designed in a way that is 100% convenient,” says Wong. Most of the locals, especially in Kuala Lumpur and Selangor, will still need a car to drive themselves to the nearest MRT station to take a train to their destination. Though it is a shorter drive and bypasses the traffic jam for most of the journey, one would still need to rely on a car.
And as for ride-hailing apps like Grab, Wong says: “Most of the Grab drivers in Malaysia are driving their own cars … We do not see Grab as competition, because what fuels a Grab driver’s revenue is his car.” With the increase in pricing of Grab car hires in Malaysia, it may also be cheaper to own a car than to constantly hail one.
Competition to the group’s dealership business comes from other dealerships selling the same brands. As Malaysia is too big a country for a single dealership to hold the exclusive dealership rights, dealers have to pitch to the brand owner to open up a new dealership. Usually, the brand owner will announce that it wants go to into a new area and dealers will be invited to pitch.
General advertising of the brand is covered by the brand owner and thus, all dealerships, regardless of who is managing it, will sport similar advertising and marketing materials.
“It is our responsibility to attract customers to our outlets,” says Sai Keat, who adds that part of the group’s marketing strategy includes holding events for their customers to attract them to come back and social media marketing to increase awareness.
“But the whole gist of a dealership is customer service. You have to be able to provide the best for the customer – fair pricing, good servicing and follow-ups,” says Wong. “This – good customer service – is one of the strong points we have in all of our dealership outlets. We have our focus on our customers and we have a sales and servicing portfolio to ensure that we call and remind our customers to come by for servicing.”
Cruising on a straight line
Although the group’s focus is currently on the Malaysian market, it is not totally shutting off the idea of overseas expansion in the future. “We are exploring and looking at other regions. But everything is still in its preliminary stage and we have to look into all the opportunities, as well as the limitations, of setting up business in another country,” says Sai Keat.
Instead of mere geographical expansion, MeGroup is eyeing a broader range of product offerings. For example, Keat Yee says that the company might consider second-hand trading, although that is not on the cards for now for a couple of reasons, including the need to have a lot of cash on hand to hold inventory, and to also deal with warranty issues.
What is more likely is the expansion of its portfolio of brands. While MeGroup is focused on selling mid-range makes for now, it will not rule out higher-end brands. Wong says that he has received overtures from a luxury car brand before. “We will not say ‘no’ to opening a luxury car dealership. But we will announce when the time is right. For now, compared to the mid-range cars, it is a much more expensive investment,” says Wong.
MeGroup was listed in November 2018 at 23 cents. It closed on Feb 11 at 21 cents, which values the company at 48.88 times historical earnings.
