PETALING JAYA: RCE Capital Bhd
’s earnings are expected to pick up in the subsequent quarters after delivering weaker sequential results in the first quarter of financial year 2027 (1Q27).
RCE Capital, majority owned by veteran banker Tan Sri Azman Hashim, provides financing solutions to civil servants.
CIMB Research said the group’s core net profit fell 12.2% quarter-on-quarter (q-o-q) in 1Q27 as provisions edged up by 55.3% q-o-q.
This implies a larger annualised net credit charge expansion of 50 basis points (bps) q-o-q, although receivables growth declined by 0.5% q-o-q.
This likely reflects a more cautious provisioning stance amid a minor uptick in the gross impaired financing ratio to 4.33% in 1Q27 from 4.25% in 4Q26.
“The 1Q27 net financing income also contracted marginally by 0.9% q-o-q, in line with the slight 0.5% q-o-q contraction in receivables growth,” it said.
Despite the sequential decline, RCE Capital’s core net profit in 1Q27 came in at RM30.4mil, or 17.1% higher year-on-year, broadly within expectations.
The more robust 1Q27 performance was driven by sharply lower provision, which implies a decline in net credit charge to 141.6 bps.
“The main letdown in the 1Q27 results was flat receivables growth.
“Nonetheless, we expect receivables growth momentum to pick up following implementation of improved credit control and better fraud prevention measures,” according to CIMB Research.
For now, the research house has not made changes to its earnings forecasts for the financial year 2027 (FY27) till FY29.
“That said, we may review our forecasts should asset quality trends point to a deterioration in RCE Capital’s credit outlook.”
It has maintained a “hold” rating on RCE Capital, with an unchanged target price of RM1.18 per share anchored on FY27’s return on equity (RoE) of 15%, cost of equity of 9.35%, and a terminal growth rate of 3%.
“Our price-to-book value multiple reflects prudent credit provisioning and reduced earnings volatility following the tightening of RCE Capital’s underwriting standards.
“RCE Capital continues to offer a defensive income profile, supported by a sustainable dividend yield of about 6%, underpinned by a payout ratio of over 70%.
“RCE Capital is expected to maintain a manageable net debt–to-equity level of 1.5 times, with funding costs remaining stable at about 5% per annum. through FY27 to FY29.”
It said near-term re-rating catalysts remain limited for RCE Capital, as several structural challenges persist.
These include concentrated borrower exposure, particularly to civil servants and the bottom 40% income group borrowers, as well as sensitivity to macroeconomic slowdown and shocks, which could increase asset quality pressures despite safeguards such as salary deductions.
Other structural challenges are lagging digital capabilities; and reliance on third-party payroll-deduction platforms, which exposes the group to execution risks and fraud incidents.
“Nonetheless, any improvement in its distribution channels and diversification beyond its traditional civil servant segment could enhance RCE Capital’s asset quality and earnings, supporting higher RoE and dividend visibility,” it added.
