Decent quarter
Maintain HOLD with a lower TP of MYR1.67
Results were within our expectations. Our estimates are unchanged. Financing and loans growth have been tepid and cost of funds is rising, which leave less room for positive earnings surprises going forward. We cut our TP to MYR1.67 on 1.3x end-FY22E P/BV (+2SD to 5-year mean) from MYR1.93 (MYR3.67 pre-share DPS and bonus issue) on 1.5x endFY22E P/BV (+3SD). HOLD for decent dividend yields of >4.0% p.a. and potential award of digital banking license next month.
Earnings within our expectations
3QFY3/22 net profit of MYR34.7m (flat YoY, +10% QoQ) brought 9M net profit to MYR101.6m (+12% YoY), at 74% of our FY estimate. 9M revenue of MYR224.8m was also in-line at 75% of our FY estimate. No DPS was declared but this was expected as RCE traditionally declares DPS during 2QFY and 4QFY. Note that RCE’s share price has gone ex- for (i) 1 treasury share for 20 shares held dividend; and (ii) 19-for-21 bonus issue.
Operating metrics a mixed bag
3Q gross financing and loans receivables was still flattish QoQ (+0.5%) although the upliftment of the Full Movement Control Order restored the movement of marketing agents. RCE stated that it will encourage its marketing agents to be a tad more aggressive going forward. To be fair, NPF ratio eased 23bps QoQ to a new low of 3.8% as asset quality improved and net gearing also eased 3ppts QoQ to another low of 123%.
Less room for +ve earnings surprises
Though we forecast gross financing and loans receivables growth of 3% p.a. (unchanged), our earnings estimates are unchanged. Earnings are more sensitive to net interest margins (NIM) instead. Cost of funds (COF) is also rising. RCE issued a Sukuk tranche with a 3.9% profit rate in Jul 2021 which was 54bps higher than the previous one. Yet, the increase in average COF will be measured as Sukuk tranches are gradually replaced by the higher profit rate ones. Also, RCE will introduce higher profit rate products to maintain NIMs.