RCE Cap to benefit from civil servant salary hike

PETALING JAYA: Non-bank financial institutions generally do not attract as much interest like their banking counterparts.

However, the salary hike for civil servants from December may put RCE Capital Bhd on the radar.

The company, which is majority-owned by banker Tan Sri Azman Hashim via his private vehicle Cempaka Empayar Sdn Bhd, provides personal financing with its customers being civil servants.

The government had announced that civil servants’ salaries are to rise by more than 13% from Dec 1, 2024, which will cost over RM10bil per year.

“This windfall for civil servants is a boon for RCE Capital.

“We see its financing growth likely to accelerate,” said Maybank Investment Bank (Maybank IB) Research, which is raising the stock’s earnings per share and dividend per share by up to 10% and 9% respectively.

It has upgraded the stock to “buy” with a higher target price of RM3.02, from RM2.44 before.

The re-rating reflects stronger earnings and dividend prospects, the research firm added.

According to Maybank IB, there is a strong correlation between government emoluments and RCE Capital’s financing receivables balance.

“RCE Capital explained that it will extend more financing to civil servants if they receive higher salaries as long as their debt service ratio does not exceed 60% as per Bank Negara guidelines.”

With a gross financing balance of RM2.1bil, Maybank IB estimated that the company’s market share is about 2% in the personal financing industry.

However, competition is easing as competitors have been reducing their exposure to personal financing.

The group also seemed to enjoy lower cost of funds where Maybank IB estimates that “every 25 basis point reduction in cost of funds will accrue 3% to earnings”.

It has a unique salary deduction scheme whereby the instalments are collected through monthly instalments via two agents, namely, EXP Payment Sdn Bhd and Angkatan Koperasi Kebangsaan Malaysia or Angkasa.

However, the group will experience non-performing financing (NPF) receivables and credit costs if civil servants retire early or resign from the civil service, to seek employment opportunities out of the civil service to cope with the higher cost of living.

Maybank IB said it gathered that the group’s NPF ratios and credit costs have been creeping up but could decelerate as the higher salaries may see fewer individuals leave the civil service going forward.

The stock is currently trading at a premium of 2.56 times price-to-book. But an analyst said the valuation is justified given its higher return on equity of 17% as compared to the banking sector average of 10% to 12%, while its dividend yield is attractive at about 5%.

RCE Capital posted a net profit of RM34.56mil for the third quarter ended Dec 31, 2023, bringing the nine-month period profitability to RM109.70mil.

It raised its dividend payout ratio policy from 20%-40% to 60%-80%.

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RCE Capital , financing , lending , bank


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