RCE Capital performance boost likely through FY29

PETALING JAYA: RCE Capital Bhd, which offers personal financing to civil servants, is expected to see earnings rise across the financial year ending March 31, 2027 (FY27) to FY29 despite a sequentially softer first quarter ended June 30, 2026 (1Q27) financial performance, says CIMB Research.

The research house said the earnings outlook was due to the more benign credit risk environment and the absence of nonrecurring expenses.

It has maintained a “hold” call on the stock and a target price of RM1.18.

CIMB Research said the company continues to provide a defensive income profile backed by a sustainable dividend yield of approximately 6%, underpinned by a payout ratio of more than 70%.

It noted that the company could potentially start pushing for stronger growth in the coming quarters, and thus held off on making any revision to the FY27 to FY29 earnings estimates, based on a net credit charge of 120 basis points (bps) per annum, a net financing margin of 9.26% to 9.4%, and an average cost of funds of 5%.

“That said, we may review our forecasts should asset quality trends point to a deterioration in RCE’s credit outlook,” it said, adding that near-term re-rating catalysts continue to be limited, given persisting structural challenges such as the company’s concentrated borrower exposure among civil servants and the bottom 40% income group.

This results in sensitivity to macroeconomic slowdown and shocks, lagging digital capabilities, and risks from reliance on third-party payroll-deduction platforms.

Nevertheless, it flagged that an improvement in its distribution channels and diversification beyond its traditional civil servant segment could enhance asset quality and earnings, supporting higher return on equity and dividend visibility.

The company posted 1Q27 core net profit (CNP) of RM30.4mil, marking a 17.1% rise year-on-year (y-o-y), but a 12.2% decline from the previous quarter.

The CNP accounted for 23% of its and consensus’ estimates, with stronger y-o-y performance driven by 34% lower provisions compared to 1Q26, bringing net credit charge (NCC) down to 141.6 bps from 216.7 bps last year.

“The main letdown in the 1Q27 results was flat receivables growth (plus 0.8% y-o-y),” CIMB Research said.

Meanwhile, RCE’s quarterly earnings dipped as provisions rose by 55.3% quarter-on-quarter (q-o-q), implying a larger annualised NCC expansion of 50 bps from the previous quarter.

The research house noted that q-o-q receivables growth declined by 0.5%, lagging behind its full-year forecast of 5% y-o-y growth.

It said this likely reflects a more cautious provisioning stance as gross impaired financing ratio edged up to 4.33% in 1Q27 compared to 4.25% in 4Q26.