RCECAP: Financial Performance Bolstered by Cost Control, Operating Environment Shows Glimmers of Recovery

RCE Capital delivered a broadly in-line financial performance for the first half of fiscal year 2026 (1HFY26), despite a 5% year-on-year (YoY) dip in net profit to MYR55.3 million. The second quarter of FY26 (2QFY26) showed positive momentum, with net profit rising 13% quarter-on-quarter (QoQ) and 5% YoY to MYR29.3 million. These results accounted for 43-44% of analysts’ and consensus full-year estimates. An interim dividend per share (DPS) of 3 sen was declared, reflecting an 80% payout ratio.

The company’s performance was significantly driven by enhanced cost efficiencies and margin expansion. Net financing margin saw an estimated 21 basis points (bps) YoY increase to 6.8% due to lower funding costs. Total operating income grew 2% YoY, complemented by a 3% YoY rise in non-financing income. Crucially, credit costs demonstrated a steep QoQ decline, dropping to 1% in 2QFY26 from 2.2% in 1QFY26, with the Stage 3 allowance ratio improving from 4.8% to 4.7%.

Operational Challenges and Future Outlook

Despite these positives, RCE Capital experienced some challenges, including flat year-to-date financing growth of 2% YoY, which remains below management’s mid-single-digit target. The cost-to-income ratio (CIR) for 1HFY26 also saw a slight uptick to 28% from 27% in 1HFY25. Return on Equity (ROE) for 1HFY26 declined by 1 percentage point to 13.2% compared to 14.2% in 1HFY25.

Looking ahead, QoQ trends indicate early signs of an improving operating environment, with financing growth accelerating. The anticipated government cash handouts and civil servant salary adjustments in January 2026 are viewed as potential positive catalysts for the company. However, the investment bank (RHB) awaits further clarity from management regarding the long-term outlook. Consequently, earnings forecasts for FY26-28F have been conservatively trimmed by 4-5%, primarily due to adjusted assumptions for non-financing income and operating expenses.

Analyst Rating and Risks

The investment bank (RHB) maintained its “Neutral” rating on the stock and adjusted its target price downwards to MYR1.10 from MYR1.15. This revised target reflects a GGM-derived P/BV of 1.80x, incorporating a slightly lower sustainable ROE of 15.3%. Key downside risks identified include softer-than-expected financing growth, higher-than-expected credit costs, and lower-than-expected net financing margins. Conversely, the absence of these risks presents potential upside opportunities.