Shariah Compliant
14 August 2025
RCE Capital (RCE MK): Still An Air Of Caution
Financial Services | Banks
- Stay NEUTRAL, new MYR1.15 TP from MYR1.25, 5% upside and c.6% FY26F (Mar) yield. RCE Capital’s FY26 got off to a slow start, with 1Q net profit coming up short against our and consensus’ full-year estimates. Management is still maintaining a cautious stance on disbursements amidst still-elevated – albeit plateauing – cases of bankruptcies and early retirements. While most of the bad news looks priced in, an unexciting core earnings profile will likely cap the stock’s potential upside.
- Off to a slow start. RCE posted a 1QFY26 net profit of MYR26m, a 14% drop YoY (QoQ: +56% headline, -26% core) – this formed 17% and 19% of our and consensus’ full-year PATMI forecasts. The key variance vs our estimates came from: i) Softer-than-expected operating income of MYR63.5m (+2% YoY, -17% QoQ) due to weaker-than-expected financing receivables growth, and ii) higher-than-expected impairment allowances of MYR11m (+46% YoY, -25% QoQ) from still-elevated cases of bankruptcies and early retirements among civil servants. All in, 1QFY26 ROAE of 12.6% was a decline from 14.8% in 1QFY25 (4QFY25: 8.0%).
- Still an air of caution. Management reiterated the need to remain cautious with disbursements amidst a tough operating environment, where cases of bankruptcies and early retirements are still at elevated levels. Indeed, financing receivables growth was a soft 1% YoY (flat QoQ) – tracking below our initial estimate of +6% for FY26, which we revised down to +3%. Notably, management notes that the number of bankruptcy cases appears to have plateaued, although improvements will need to be seen before the group can turn more bullish with disbursements.
- Slight benefits from the OPR cut. Recall that Bank Negara Malaysia (BNM) had recently cut the OPR by 25bps. This will have a slight positive impact to interest/profit expenses on RCE’s revolving credits, which form c.30% of the group’s financing liabilities base. We estimate the interest/profit expense savings to amount to c.MYR2m pa – not too significant. More materially, RCE is planning a new sukuk tranche issuance to capitalise on the favourable bond yield movements of late – while the tranche amount and profit rate are undisclosed at this juncture, we think this could allow the group to more significantly lower its overall cost of funds over a longer period.
- We slash our FY26-28 estimates by 15%, 12%, and 10% as we factor in softer receivables growth and higher credit cost assumptions. Our TP drops to MYR1.15 (from MYR1.25), with zero ESG premium/discount ascribed. As the share price has retreated c.16% over the past three months, we think most of the bad news have been priced in, though an unexciting earnings profile (c.4% core earnings growth in FY26F) will likely cap any potential upside for the stock. Dividend yields of more than 6% provide downside support.
Forecasts and Valuation
| Mar-24 | Mar-25 | Mar-26F | Mar-27F | Mar-28F | |
|---|---|---|---|---|---|
| Reported net profit (MYRm) | 139 | 111 | 129 | 138 | 146 |
| Net profit growth (%) | (0.0) | (20.3) | 16.3 | 7.0 | 6.2 |
| Recurring net profit (MYRm) | 139 | 124 | 129 | 138 | 146 |
| Recurring EPS (MYR) | 0.09 | 0.08 | 0.09 | 0.09 | 0.10 |
| BVPS (MYR) | 0.56 | 0.57 | 0.59 | 0.61 | 0.63 |
| DPS (MYR) | 0.07 | 0.07 | 0.07 | 0.07 | 0.07 |
| Recurring P/E (x) | 11.75 | 12.98 | 12.56 | 11.74 | 11.06 |
| P/B (x) | 1.96 | 1.92 | 1.88 | 1.82 | 1.75 |
| Dividend Yield (%) | 6.7 | 5.9 | 6.0 | 6.4 | 6.8 |
| Return on average equity (%) | 17.0 | 13.2 | 15.1 | 15.7 | 16.1 |
Source: Company data, RHB
Emissions And ESG
Trend analysis
RCE’s total emissions showed a marginal decline YoY in FY25, owing to the group’s initiatives to improve operational efficiencies and energy use.
| Emissions (tCO2e) | Mar-23 | Mar-24 | Mar-25 | Mar-26 |
|---|---|---|---|---|
| Scope 1 | 23 | 26 | 28 | na |
| Scope 2 | 196 | 191 | 186 | na |
| Scope 3 | – | 377 | 369 | na |
| Total emissions | 219 | 594 | 583 | na |
Source: Company data, RHB
Latest ESG-Related Developments
FY25 emissions: RCE posted total Scope 1, 2 and 3 greenhouse gas emissions of 583tCO2e in FY25, a 2% YoY decline – the savings were largely attributable to the group’s internal initiatives to improve operational efficiencies and energy use.
Emphasis on employee development: RCE’s employees enjoyed an average of 22 training hours per employee in FY25, a slight drop from 24 hours in FY24, on topics such as leadership development, regulatory and technical skills, and special interest topics.
ESG Unbundled
Overall ESG Score: 3.0 (out of 4)
Last Updated: 14 Aug 2025
E Score: 2.7 (GOOD)
RCE’s greenhouse gas emissions (on both an absolute and per employee basis) demonstrated a decrease in FY25 (Mar) underpinned by the group’s proactive climate change management strategies. Other environmental indicators, including energy use and waste diverted from disposal, also showed YoY improvements.
S Score: 3.0 (GOOD)
RCE places strong focus on employee development – its employees enjoyed an average of 22 training hours in FY25, a slight decline from 24 hours in FY24 due to a greater focus on on-the-job learning. The group’s employee turnover rate in FY25 was a low 8% (FY24: 13%), owing partly to its competitive compensation packages (which includes an employees’ share scheme for select employees).
G Score: 3.7 (EXCELLENT)
Five out of nine members of the Board of Directors are independent directors. RCE’s sustainability agenda is determined by a dedicated Sustainability Management Committee, which in turn is supported by a Sustainability Working Committee.
ESG Rating History
The ESG rating history shows a consistent score of 3.0 from August 2023 to August 2025.
Source: RHB
Financial Exhibits
Valuation basis
Our GGM assumptions are:
- CoE of 10.0%;
- ROE of 15.8%; and
- 3.5% long-term growth rate.
Key drivers
Our FY26F forecasts are most sensitive to changes in:
- Growth in receivables;
- Impairment allowances; and
- Financing margins.
Key risks
The upside risks include:
- Greater-than-expected financing growth;
- Lower-than-expected credit costs; and
- Stronger-than-expect net financing margin.
The converse represents downside risks.
Company Profile
RCE provides general financing services to civil servants – repayments are done via direct salary deductions. Its wholly-owned EXP Payment unit offers payroll collection management services for government departments under the purview of the Accountant General’s Department.
Income statement (MYRm)
| Mar-24 | Mar-25 | Mar-26F | Mar-27F | Mar-28F | |
|---|---|---|---|---|---|
| Interest income | 291 | 292 | 298 | 310 | 326 |
| Interest expense | (99) | (101) | (105) | (115) | (121) |
| Net interest income | 192 | 192 | 193 | 196 | 205 |
| Non interest income | 89 | 76 | 81 | 92 | 99 |
| Total operating income | 281 | 267 | 274 | 287 | 304 |
| Overheads | (66) | (64) | (68) | (71) | (74) |
| Pre-provision operating profit | 215 | 203 | 206 | 217 | 230 |
| Loan impairment allowances | (30) | (38) | (35) | (33) | (35) |
| Other exceptional items | (14) | ||||
| Pre-tax profit | 185 | 152 | 171 | 18
|
