RCE Capital Bhd (Nov 29, 47.5 sen)
Maintain market perform, fair value of 50 sen: RCE Capital Bhd’s net profit of RM26.9 million for 2QFY12 ended Sept 30 (-13.9% year-on-year [y-o-y]; -19.1% quarter-on-quarter [q-o-q]) was slightly ahead of our and consensus expectations. The 1H12 net profit of RM60.1 million (+9.5% y-o-y) accounted for 62.4% of our and 61.3% of consensus full-year net profit forecasts.
The key variances were further gains recognised from the sale of AmFirst REITs (RM2.1 million during the quarter) and low effective tax rate of 19.4% in 1HFY12 (against our assumption of 25%). As expected, RCE did not declare any dividend.
Q-o-q net profit fell 19.1% due to: (i) 3.2% q-o-q drop in revenue as RCE’s loan book continued to contract and lower interest from early settlement of loans; (ii) lower gain from sale of AmFirst REITs (1QFY12: RM3.8 million); (iii) higher loan impairment allowance of RM2.3 million against 1QFY12’s RM400,000; and (iv) higher effective tax rate of 22.7% than 1QFY12’s 16.5%.
Revenue for 1HFY12 was down 10.4% y-o-y due to a smaller loan base but net profit was up 9.5% y-o-y due to: (i) RM5.9 million gain from sale of REITs; (ii) lower loan impairment allowance of RM2.7 million against 1HFY11’s RM5.7 million; and (iii) lower effective tax rate of 19.4% versus 1HFY11’s 26.9%.
RCE’s net loan book as at end-September 2011 contracted by 2.1% q-o-q (-11.9% y-o-y). This could reflect the stiff competition, resulting in the refinancing/early settlement of loans by borrowers. RCE said early settlement of loans slowed during the quarter. Coupled with the resumption of disbursements to Koperasi Wawasan Pekerja-Pekerja Bhd (Kowaja) in July 2011, the pace of contraction of RCE’s loan book moderated in 2QFY12 compared with 1QFY12 (-9.4% q-o-q; -7.6% y-o-y).
The risks would be slower than expected loan growth and weaker than expected margins, which could be due to, for example, competition and regulatory issues.
We raise our FY12 net profit forecast by 5.2% after imputing higher gains from the disposal of AFS securities and a lower effective tax rate assumption of 22.5%. We are keeping our FY13/FY14 net profit projections unchanged for now.
Our fair value of 50 sen is unchanged and based on target calendar year 2012 price-earnings ratio of four times. We think the operating environment remains challenging amid stiff competition from the likes of Malaysia Building Society Bhd.
Regulatory changes could exacerbate the situation. As Bank Negara Malaysia said recently, Suruhanjaya Koperasi Malaysia (SKM) will be imposing requirements for responsible financing practices on credit cooperatives.
We think these concerns have been partly reflected in RCE’s valuations so we are keeping our “market perform” call on the stock. — RHB Research, Nov 29
This article appeared in The Edge Financial Daily, November 30, 2011.
Maintain market perform, fair value of 50 sen: RCE Capital Bhd’s net profit of RM26.9 million for 2QFY12 ended Sept 30 (-13.9% year-on-year [y-o-y]; -19.1% quarter-on-quarter [q-o-q]) was slightly ahead of our and consensus expectations. The 1H12 net profit of RM60.1 million (+9.5% y-o-y) accounted for 62.4% of our and 61.3% of consensus full-year net profit forecasts.
The key variances were further gains recognised from the sale of AmFirst REITs (RM2.1 million during the quarter) and low effective tax rate of 19.4% in 1HFY12 (against our assumption of 25%). As expected, RCE did not declare any dividend.
Q-o-q net profit fell 19.1% due to: (i) 3.2% q-o-q drop in revenue as RCE’s loan book continued to contract and lower interest from early settlement of loans; (ii) lower gain from sale of AmFirst REITs (1QFY12: RM3.8 million); (iii) higher loan impairment allowance of RM2.3 million against 1QFY12’s RM400,000; and (iv) higher effective tax rate of 22.7% than 1QFY12’s 16.5%.
Revenue for 1HFY12 was down 10.4% y-o-y due to a smaller loan base but net profit was up 9.5% y-o-y due to: (i) RM5.9 million gain from sale of REITs; (ii) lower loan impairment allowance of RM2.7 million against 1HFY11’s RM5.7 million; and (iii) lower effective tax rate of 19.4% versus 1HFY11’s 26.9%.
RCE’s net loan book as at end-September 2011 contracted by 2.1% q-o-q (-11.9% y-o-y). This could reflect the stiff competition, resulting in the refinancing/early settlement of loans by borrowers. RCE said early settlement of loans slowed during the quarter. Coupled with the resumption of disbursements to Koperasi Wawasan Pekerja-Pekerja Bhd (Kowaja) in July 2011, the pace of contraction of RCE’s loan book moderated in 2QFY12 compared with 1QFY12 (-9.4% q-o-q; -7.6% y-o-y).
The risks would be slower than expected loan growth and weaker than expected margins, which could be due to, for example, competition and regulatory issues.
We raise our FY12 net profit forecast by 5.2% after imputing higher gains from the disposal of AFS securities and a lower effective tax rate assumption of 22.5%. We are keeping our FY13/FY14 net profit projections unchanged for now.
Our fair value of 50 sen is unchanged and based on target calendar year 2012 price-earnings ratio of four times. We think the operating environment remains challenging amid stiff competition from the likes of Malaysia Building Society Bhd.
Regulatory changes could exacerbate the situation. As Bank Negara Malaysia said recently, Suruhanjaya Koperasi Malaysia (SKM) will be imposing requirements for responsible financing practices on credit cooperatives.
We think these concerns have been partly reflected in RCE’s valuations so we are keeping our “market perform” call on the stock. — RHB Research, Nov 29
This article appeared in The Edge Financial Daily, November 30, 2011.
