CMH rides out shift in buying trends

JSE-listed motor retailer Combined Motor Holdings (CMH) had a good year.

Declining interest rates led to speedy new passenger vehicle sales; monthly statistics from industry body Naamsa show that sales are back to pre-pandemic levels.

But while the uplift in vehicle sales is welcomed, there has been a fundamental shift in consumer buying trends. The entry of Chinese and Indian brands into the domestic market means buyers are chasing value in the R600,000 and under categories. About 55% of all vehicles sold in April were from China and India, and that share is growing.

Until a few years ago, Chinese and Indian cars were seen as risky purchase choices. Now, cash-strapped consumers have pivoted from once aspirational European brands towards the more reasonable, value-orientated options offered by Chinese and Indian brands. These are packed with premium options — at an affordable price. Sales of some brands have doubled year on year, with Chery, Jetour, Jaecoo and Omoda now outselling some traditional brands. In April, the top-selling vehicle in South Africa was the Chery Tiggo 4, pushing ahead of the locally built Volkswagen Polo Vivo.

CMH’s results for the year ended February detailed the recovery in new vehicle sales, with revenue up 18.6% to R15.7bn and operating profit up 17.1% to R749m. Thanks to a 10% rise in finance income and a slightly lower finance charge, headline earnings rose 33% to 536.4c a share.

With more than 100 dealerships across the country, 93% of CMH’s revenue was derived from motor retailing distribution, 5% from car hire and 1% from financial services, with the rest from corporate services.

Profitability is more skewed given the structural margins. Selling cars tends to be low margin, as the bulk of the money is ultimately made from servicing, financing and parts. At the profit before tax line, selling cars generated 49% of profits, car hire 29% and financial services 13%.

CMH has pivoted successfully over the years towards more affordable Chinese and Indian vehicles and has the exclusive rights to Suzuki, consistently South Africa’s second best-selling car brand. Chery, Haval, GWM and MG are also in the CMH portfolio, but CEO Jebb McIntosh said they are still underrepresented in CMH dealerships, and there is no representation yet in top-selling brands such as Jetour.

CMH’s results for the year ended February detailed the recovery in new vehicle sales, with revenue up 18.6% to R15.7bn

Seeing how the landscape was evolving, CMH also started Mandarin Parts Distributors (MPD) a few years ago to source and supply parts for Chinese and Indian vehicles coming off service plans and warranties. MPD has had strong growth, with McIntosh commenting that profits rose 65%, constituting 10% of motor retail profitability and growing.

While the star performer was motor retail, where profits soared 57% to R258m, the car rental business produced a modest 1% rise in profit to R156m in a more challenging operating period, owing to softer daily rental rates and residuals from selling the used fleet coming under pressure. Financial services had a 20% dip in profits to R66.6m due to problems with one of CMH’s banking partners. This has now eased with a 40% pickup in business in the first quarter and high expectations of profit recovery in the year ahead.

CMH is stuffed with cash despite the R191m share buyback. It ended the year with nearly R1.15bn in the bank (up 20%), equivalent to 43% of its market cap, or R16.50 a share. A final dividend of 222c a share (up 29.8%) was declared.

Institutional investors quizzed directors at the results presentation as to why CMH held such a large cash pile. McIntosh said CMH had several ideas for the money, with about half kept for deals in the next three to four months. Thoughts on ongoing share buybacks suggested by a major shareholder were also being taken on board.

The company made an offer in December 2025 at R33.50 a share to buy back 15% of outstanding shares. Institutional shareholders, seeing the inherent value, shunned the offer, with only management selling 5.4-million shares, or 7.2%, for a total buyback of R191m.

CMH remains well positioned in an environment driven by dynamic changes in consumer vehicle spending. Suzuki continues to perform, and the focus on bringing Chinese brands into the dealership network has sharpened. CMH has now also secured the rights to Foton, a Chinese range of light commercial vehicles. CMH has had excellent local sales — the brand is highly profitable and the company has high expectations for it.

Three interest rate cuts have aided new vehicle sales over the past year, but caution is now warranted due to the Middle East conflict. Concerns over rising inflation have dampened hopes for further rate trims.

CMH and Naamsa expect 8%-10% growth in new vehicle sales for the year ahead but warn that soaring fuel prices will hit consumer spending.

CMH is a tightly held, illiquid small-cap with a solid dividend yield of 5.8% backed by buckets of cash that could be used for further accretive expansion alongside ongoing share buybacks and dividends.

With the counter 8% higher than the December 2025 buyback and business prospects remaining healthy, IM can see some further gas in the share price.