KUALA LUMPUR (Nov 21): Shares of RCE Capital Bhd (KL:RCECAP) fell on Thursday after the company, which mainly provides financing to civil servants, reported weaker than expected quarterly results.
RCE Capital fell as much as 10 sen or nearly 6% to RM1.63. The stock was trading at RM1.66 at 9.10am, giving the company a market capitalisation of RM2.5 billion. Trading volume totalled 943,000 shares so far.
CIMB Securities downgraded its call on the counter to “reduce” on the weaker results, with a lower dividend discounted model (DDM)-based target price of RM1.37.
Notably, its second quarter (2QFY2025) core net profit fell by 27.2% year-on-year (-8.2% quarter-on-quarter), mainly owing to lower fee income and higher operating costs.
CIMB Securities said this brings RCE Capital’s 1HFY2025 net profit to RM58.2 million (-22.6% y-o-y), which is below expectations at 40% and 39% of its and consensus FY2025 net profit estimates, respectively.
"Key variances include higher staff costs in 2QFY25 and negative receivable growth in 1HFY25," it said in a note on Thursday,
The research house cut its earnings projections by 12.7%-13.1% for FY2025–FY2027 to account for lower receivable growth in FY2025F and higher operating costs for FY2025–FY2027.
Despite that, CIMB Securities sees RCE Capital’s net profit rising 19.1% half on half in 2HFY2025F, with 4QFY2025F expected to be the strongest quarter.
"This optimism stems from the upcoming 7–15% civil servant salary hikes, starting Dec 1, 2024 (Phase 1), which coincides with the festive season."
Receivables decline y-o-y
Meanwhile, CIMB Securities noted that RCE Capital's financing receivables shrank 1.4% y-o-y in 1HFY2025 owing to its selective lending approach, focused on better credit quality disbursement, reflecting the tight financing conditions in the industry.
Impairment loss on receivables softened in 2QFY2025, declining 7.4% y-o-y and 17.9% q-o-q to RM6.4 million.
Nevertheless, non-performing financing (NPF) continued its upward trend in 2QFY2025, rising by 13.3% y-o-y and 1.6% q-o-q to reach RM88.2 million, it noted.
"This increase raised the NPF ratio to 4.3% from 3.7% in 2QFY24 and 4.2% in 1QFY25, reaching the upper limit of the historical range since 2016 of 3.8–4.3%. Meanwhile, RCE’s coverage ratio fell to 147%, the lowest level since 2015," said CIMB Securities.
Moving forward, RCE expects the upcoming civil service salary revision to reduce the risk of early retirement and civil servants’ transition to the private sector.
"Consequently, we anticipate a reduction in RCE’s NPF ratio to 4%."