Higher earnings growth seen for RCE Capital

RHB Research raised its forecast for RCE’s earnings for financial year 2021 (FY21)-FY23 by 5%-6% on lower credit cost and cost of fund assumptions.

PETALING JAYA: Non-bank financial institution RCE Capital Bhd is expected to record higher earnings growth this year despite the second movement control order (MCO 2.0).

RHB Research in its report yesterday said that it has raised its forecast on RCE’s earnings for financial year 2021 (FY21)-FY23 by 5%-6% on lower credit cost and cost of fund assumptions.

“The management is more prepared for this second MCO and has not seen any major adverse impact on operations. Applications, disbursements and collection remain healthy, ” it said.

However, the research house expects credit cost to be higher in the fourth quarter ending March 31,2021 (Q4) due to a possibly lower gross domestic product (GDP).

“That said, while we do not expect the higher credit cost to result in asset quality slippage, we do anticipate the forecast FY22 credit cost to normalise on the vaccine-precipitated recovery, ” RHB said.

It said RCE’s gross financing expanded 1.7% quarter-on-quarter (q-o-q) to RM1.83bil in Q3 and its asset quality remained steady with the gross impaired loan (GIL) ratio at 4% compared to 4.2% in Q2.

“We also learned that RCE has been using FTSE Russell’s scoring criteria in its ESG-related matters. A dedicated team would collect data, thereby ensuring that RCE’s ESG initiatives meet the FTSE4Good Index requirements, ” RHB said.

For Q3 ended Dec 31,2020, RCE’s net profit rose to RM34.76mil from RM30.98mil a year earlier due to higher early settlement income and lower allowances for impairment losses on receivables, which was offset by employees’ share scheme expenses incurred.

Maybank IB Research said that RCE’s Q3 earnings were within expectations and buoyed by the higher early settlement income arising from higher refinancing activities by customers.

However, it expects that RCE’s Q4 earnings could be lower q-o-q due to the re-imposition of the MCO in all states except Sarawak from Jan 13. It has maintained its earnings and dividend estimates for RCE.

“Recall that the last MCO prevented most customers from refinancing and being charged an early settlement income, ” it said.

Maybank IB has maintained its “buy” call on RCE with an unchanged target price of RM2.78 based on an undemanding 1.2 times end-calendar year 2021 estimate price-to-book ratio.

Potential re-rating catalysts include RCE obtaining its syariah status and raising its dividend per share policy from 20%-40% currently.

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