Mayabank IB noted on the weak operating environment for RCE, the house said the financing receivables growth is likely to ease as the credit quality of new applicants has much to be desired.
Credit costs also remain high due to more resignations and early retirements. Thus, Mayank IB trimmed its EPS estimates
by 3-5%, and TP to MYR2.44 from MYR2.59 as it employs a lower endCY24E target P/BV of 2.1x (2.2x previously). With share price having reflected much of the negatives, the house upgrade RCE to HOLD from SELL.
Financing receivables growth likely to decelerate…
In the past, RCE had always guided that it plans to grow financing receivables in tandem with the banking industry loans growth (CY23: +5.3%). That said, the house said it understands that this target may be difficult to achieve in the near future (MIBG CY24 forecast: +4.6%). RCE stated that demand for its financing products have been robust but the credit quality of new applicants has not been ideal due to higher cost of living. Thus, it is declining financing applications more frequently recently.
… with credit costs likely to remain elevated
In addition, Maybank IB said it understands that non-performing financing receivables(NPF) ratios are creeping up. After a spike in NPF ratios in 1QFY3/23 due to the mass resignation of academicians and healthcare workers followed by a gradual easing until 2QFY3/24, the house understands that NPF ratios have been creeping up again due to more resignations and early retirements. Thus, allowance for impairment loss on receivables (credit costs) will likely remain elevated in the near term. Trim FY24E/FY25E/FY26E EPS by 5%/3%/5%
This is to reflect:- lower FY24E/FY25E/FY26E financing receivable growth of 5%/2%/2% from 6%/4%/4% – the house does not believe that financing receivable growth will fall to 0% in FY25E and FY26E as they even grew 1% in FY21A and 2% in FY22A when the movement of RCE’s marketing agents were restricted by the pandemic then; and higher FY24E/FY25E/FY26E credit cost ratios of 1.5% p.a. from 1.0% p.a. previously.
