RHB Investment Research Reports

RCE Capital - Still a Consistent Performer; Keep BUY

Publish date: Tue, 31 May 2022, 09:55 AM
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An official blog in I3investor to publish research reports provided by RHB Research team.

All materials published here are prepared by RHB Investment Bank Bhd. For latest offers on RHB Invest trading products and news, please refer to: http://www.rhbinvest.com

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  • Maintain BUY, higher MYR2.00 TP from MYR1.90, 14% upside and c.4% yield. Results were broadly in line with expectations, at 102-103% of our and Street’s estimates. A second interim DPS of 4 sen was declared, bringing FY22 (Mar) total DPS to 11 sen, or a 41.2% dividend payout ratio. We understand that funding cost is actively managed through the utilisation of revolving credits as a comparatively cheaper cost of funds, and there is no immediate need for sukuk issuance. We continue to like its resilient asset quality, consistent earnings, and dividend deliveries.
  • FY22 results in line. RCE Capital reported 4QFY22 net earnings of MYR31.5m (-9% QoQ, -7% YoY), bringing FY22 net earnings to MYR133.2m (+6.8% YoY). The QoQ weakness is mainly from higher allowance for impairment on financing booked in 4QFY22. We deem these results in line with our and Street’s estimates at 102-103%. A second interim DPS of 4 sen was declared, bringing FY22 total dividends to 11 sen, representing a 41.2% dividend payout ratio.
  • Operational highlights. 4QFY22 PIOP was flattish (-1.9% QoQ, +1.8% YoY). Operating income declined 3.3% QoQ (+1.9% YoY) on lower fee income (due to less favourable product mix) while CIR improved to 21.6% from 22.7% on absence of ESOS charges – which were seasonally recorded in 3QFY22 – leading to lower overheads. That said, the YoY and QoQ weakness in 4QFY22 bottomline mainly came from the normalisation of allowance for impairment on financing. 4QFY22 saw a higher MYR5.9m impairment (3QFY22: MYR1.9m, 4QFY21: MYR0.6m), with credit cost rising to 125bps. With that, ROE declined 2ppts sequentially to 14.7% from 16.7%.
  • Receivables and asset quality. Sequentially, gross financing grew at a faster pace of 0.9% QoQ (+1.8% YoY) vs +0.5% in 3QFY22. We understand that collection remains robust despite the festive period. Asset quality remains solid, with the NPL ratio at 3.8% (flat QoQ) and LLC at 163%.
  • We lift FY23-24F by 4% and 1%, mainly on balance sheet changes as we updated the latest financials, while keeping our FY23-24F loan growth assumption unchanged at 4%/5%. As a result, our GGM-derived TP is revised higher to MYR2.00 from MYR1.90. Our TP incorporates a 2% premium to our intrinsic value for its 3.10 ESG score, based on our proprietary methodology.
  • Downside risks to our call include: i) Higher-than-expected credit cost and ii) weaker-than-expected financing growth and net financing margins.

Source: RHB Research - 31 May 2022

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