RCECAP: Profit Jumps on Easing Impairments, Positive Outlook Maintained
| Investment Bank | TA SECURITIES |
|---|---|
| TP (Target Price) | RM0.25 (+25.0%) |
| Last Traded | RM0.20 |
| Recommendation |
The company delivered a robust financial performance in its third quarter of fiscal year 2026 (3QFY26), with net profit soaring by 19.1% year-on-year to RM36.6 million. This strong showing brings the cumulative nine-month FY26 net profit to RM92 million, aligning well with both internal and consensus expectations.
Performance Drivers
The significant profit surge was primarily driven by a substantial reduction in credit cost, attributed to the moderation in bankruptcy and resignation cases within the civil service. Revenue for 3QFY26 also increased by 2.4% year-on-year, benefiting from higher disbursement and early settlement income due to customer refinancing activities. Operational efficiency played a crucial role, with financing expenses declining quarter-on-quarter, likely influenced by the OPR cut in July 2025.
Credit Quality and Receivables
Credit quality demonstrated marked improvement, with credit cost experiencing a sequential decline of 43.7% quarter-on-quarter. The non-performing financing (NPF) ratio also improved, falling to 4.4% from 4.7% in 2QFY26. This indicates a healthier operating environment as rates of bankruptcy and early retirement cases continue to taper off from their peak levels.
Despite the positive performance, gross financing receivables saw a marginal quarter-on-quarter decline of 0.3%, as some civil servants opted to defer financing ahead of an anticipated salary adjustment. However, this is expected to be a temporary trend.
Future Outlook
The outlook remains positive, with financing receivables anticipated to pick up momentum. A key driver is the 7% civil servant salary hike effective January 2026, which is expected to translate into healthy financing receivables growth given the strong correlation with government emoluments. Additionally, the upcoming Raya celebration is expected to stimulate demand for personal financing. The improved financial stability among public sector employees, bolstered by the salary adjustment, is also seen as a factor that could reduce job migration to the private sector.
Investment Bank’s Assessment
TA Securities maintains its “Outperform” call on the company. The investment bank has revised its target price upwards to RM1.28 from RM1.22 previously, rolling over its dividend discount model base year to CY27F. The stock also offers an attractive dividend yield of 5.5% for FY27F.
