PETALING JAYA: Investor interest in RCE Capital Bhd continues to build up following the release of a strong set of first quarter financial results in August.
The company, a financial services firm which provides loans primarily to government servants, has seen its stock gain some 39% since then. This compares with the stock market’s benchmark index which shed points over the same period.
Last week alone, the stock added 7% to RM1.45.
Controlled by Ambank Group chairman Tan Sri Azman Hashim, RCE Capital has just completed a restructuring exercise which puts it back on a growth path, suggesting why investors may have been paying it some attention lately.
The company, which is scheduled to release its third quarter results early next month, declined comment for this article, citing blackout period as a reason.
However, according to Desmond Ch’ng, a Maybank Investment Bank analyst who initiated a “buy” call on the company on Sept 20, RCE Capital has “room to grow”, with an estimated market share of just 1% currently of the entire civil servant financing market, and especially so “amid sustained demand for personal loans.”
To this end, he pointed out that the size of the civil service has expanded at an annual rate of about 7% over the past four years to about 1.6 million currently.
In his comprehensive report on the company, Ch’ng who is currently the only analyst tracking it, said RCE Capital, having seen its loan book contract in financial year 2011 (FY11) to FY14 due to increased competition and regulatory controls over personal financing, has spent the past few years restructuring, tightening credit controls, and improving its capital structure.
As a result, its asset quality has improved, and financially, the group is on a much sounder footing to resume its growth path, Ch’ng, who has a RM1.60 target on the firm’s stock, told his clients.
At the time of his report, RCE Capital was trading at a calender year 2017 price-to-earnings ratio of 6.9 times, which was an 18% discount to competitor Aeon Credit and a 39% discount to banks despite a higher 3-year net profit compounded annual growth rate of 19% versus Aeon Credit’s 9.5% and the banking sector’s 5%, he added.
The turnaround in the company’s results came in August when it announced its first quarter ended June 30, 2016 results where it reported a net profit of RM17.5mil compared with a net profit of RM9.4mil for the same period a year ago. Revenue was RM51.9mil compared with RM37.5mil earlier.
For its second quarter ended Sept 30, RCE Capital made a net profit of RM18.4mil, 80% higher than a net profit of RM10.2mil for the same period, a year earlier.
In notes accompanying its latest financial results, the company said it is “committed to prioritising its asset quality improvements and process simplification initiatives, which have translated into quality loan growth and operational efficiency improvements, thereby strengthening the group’s performance.”
Maybank’s Ch’ng is expecting RCE Capital to make a net profit of RM53.5mil for the entire FY17, 35% higher than the net profit of RM39.6mil it made in FY16.
Its total profit for the first six months of FY17 stood at RM35.9mil.
On the downside, because it does not take deposits from its customers, RCE Capital does not fall directly under the purview of the central bank.
This means that it does not have access to Bank Negara’s Central Credit Reference Information System, a database that contains credit information of about nine million borrowers in Malaysia, Ch’ng said, which ultimately is a risk to the company.