RCE Capital Bhd’s core net profit for the first quarter ended March 2027 (1QFY27) rose 17.1% year-on-year (YoY) to RM30.4 million, supported by a significant reduction in provisions, according to CIMB Securities.
However, core net profit declined 12.2% quarter-on-quarter (QoQ), reflecting higher provisions and a slight contraction in receivables.
CIMB Securities said the latest quarterly core net profit accounted for about 23% of both its and consensus full-year forecasts of RM132.8 million and RM132 million respectively.
The stronger YoY performance was primarily driven by a 34% decline in provisions, which resulted in RCE’s net credit charge (NCC) falling to 141.6 basis points (bps) in 1QFY27 from 216.7 bps a year earlier.
The research house, however, identified weak receivables growth as the main disappointment, with receivables increasing only 0.8% YoY during the quarter.
CIMB Securities expects receivables growth to regain momentum following the implementation of enhanced credit controls and improved fraud prevention measures.
On a QoQ basis, RCE’s core net profit fell 12.2%, as provisions increased RM2.7 million, or 55.3%, from the previous quarter.
This resulted in an estimated annualised NCC expansion of 50 bps QoQ. Receivables also declined 0.5% QoQ, which CIMB Securities attributed partly to a more cautious provisioning stance following a slight increase in the gross impaired financing ratio to 4.33% in 1QFY27 from 4.25% in 4QFY26.
Net financing income similarly declined marginally by 0.9% QoQ, broadly in line with the 0.5% QoQ contraction in receivables.
Despite the weaker sequential receivables performance, CIMB Securities maintained its FY2027 to FY2029 earnings forecasts, noting that it may be too early to revise its assumptions.
The research house expects RCE to pursue stronger receivables growth in the coming quarters, while its forecasts are based on an annual NCC of 120 bps, net financing margins of between 9.26% and 9.40%, and an average cost of funds of 5%.
However, CIMB Securities said it may review its forecasts should asset quality trends indicate a deterioration in RCE’s credit outlook.
CIMB Securities maintained its ‘Hold’ recommendation on RCE with an unchanged target price of RM1.18, based on an FY3/27F price-to-book value (P/BV) target multiple of 1.88 times.
The valuation is underpinned by an estimated FY3/27 return on equity (ROE) of 15%, cost of equity of 9.35% and terminal growth rate of 3%.
CIMB Securities said the valuation multiple reflects RCE’s more prudent credit provisioning and potentially lower earnings volatility following tighter underwriting standards.
The research house also noted that RCE continues to offer a defensive income profile, with a sustainable dividend yield of around 6% supported by a payout ratio exceeding 70%.
Its net debt-to-equity ratio is expected to remain manageable at around 1.5 times, while funding costs are projected to remain stable at approximately 5% annually through FY2027 to FY2029.
Nevertheless, near-term re-rating catalysts remain limited due to several structural challenges.
These include RCE’s concentrated borrower exposure, particularly among civil servants and B40 borrowers, as well as its sensitivity to economic slowdowns that could put pressure on asset quality despite safeguards such as salary deductions.
Other challenges include its lagging digital capabilities and reliance on third-party payroll-deduction platforms, which expose the group to execution and fraud risks.
CIMB Securities said improvements in RCE’s distribution channels and greater diversification beyond its traditional civil servant customer base could, however, improve asset quality and earnings over time.
Such improvements could potentially support stronger ROE and greater visibility on future dividend payouts.
