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Laughing all the way to this non-bank financial institution

Lift TP to MYR3.67 but rating D/G to HOLD

On top of earnings and dividends positively surprising us again, RCE will reward shareholders with a share DPS and bonus issue. The share DPS alone is worth 19.8sen/share. We raise our EPS estimates by 11% p.a., cash DPS estimates by 1.5sen-2.0sen and end-CY22E P/BV multiple to 1.5x from MYR1.2x previously. Thus, we raise our TP to MYR3.67 from MYR3.05. Yet, with <10% upside, we downgrade RCE to HOLD from BUY.

Earnings and dividends outperformed again

2QFY3/22 net profit of MYR31.5m brought 6MFY3/22 net profit to MYR66.9m which was above our expectations at 55% of our FY estimate. The first interim DPS of 7sen was also above our expectations at 58% of our FY estimate. Yet, 6MFY3/22 revenue of MYR147.9m was within our expectations at 50% of our FY estimate. 2QFY3/22 credit cost as a percentage of gross financing and loans receivables stood at only 0.2% (MKE forecast: 1.5%).

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Future quarters ought to be better…

2QFY3/22 gross financing and loans receivables was flat QoQ as the Full Movement Control Order (FMCO) effective 1 Jun 2021 limited the movement of marketing agents. Marketing agents have resumed their activities since early Sep 2021. We raise our EPS estimates by 11% p.a. as we cut our credit cost ratio assumption to 0.5% from 1.5% and raise our FY21E/FY22E/FY23E cash DPS estimates by 2.0sen/1.5sen/1.5sen to reflect our higher EPS estimates and higher DPR of 37% (35% previously).

…with share dividend and bonus issue to boot

Also, RCE announced that it will distribute ≤18.8m treasury shares on the basis of 1 treasury share for every 20 shares held. The cost of the treasury shares is MYR20.9m or 5.8sen/share (our revised FY3/22E DPS reflect this) but its market value is MYR71.2m or 19.8sen/share. Post the share dividend, RCE will effect a bonus issue of ≤360.3m bonus shares on the basis of 19 bonus shares for every 21 shares held. In summary, a shareholder holding 100 shares on entitlement date will hold 200 shares
after the above. The above are expected to be completed in 1QCY22.