RCECAP: Earnings Exceed Expectations on Strong Cost Management, Recommendation Upgraded
| Investment Bank | TA SECURITIES |
|---|---|
| TP (Target Price) | RM0.25 (+25.0%) |
| Last Traded | RM0.20 |
| Recommendation |
The company reported a robust financial performance for the second quarter of FY26, with net profit increasing by 5.3% year-on-year to RM29.3 million. This performance significantly surpassed consensus estimates, with cumulative first-half FY26 net profit of RM55.3 million coming in 46% and 44% above internal and external forecasts, respectively. The strong showing was primarily attributed to effective cost management, notably through lower impairment allowances and reduced staff costs.
Performance Review
During 2QFY26, revenue saw a 2.8% year-on-year increase, driven by higher fee income from increased financing disbursements. Despite this, financing receivables growth remained largely muted, recording only a marginal 0.4% quarter-on-quarter increase. While the year-to-date net profit experienced a 4.8% decline, largely due to higher impairment costs earlier in the fiscal year, the recent quarter demonstrates a clear positive shift.
Navigating Challenges and Future Outlook
The easing of impairment losses is a significant positive development, with a sequential decrease of 53.6% quarter-on-quarter. This improvement is linked to a tapering off in bankruptcy rates and early retirement cases within the civil service sector. The non-performing financing (NPF) ratio has also seen a slight decline to 4.7% from its previous high of 4.8%, signaling improved asset quality.
Looking ahead, the outlook for credit demand is positive, with an anticipated improvement in 4QFY26. This is expected to be spurred by the upcoming civil servant salary adjustment in January 2026, which historically correlates with increased financing receivables. The investment bank also anticipates support for earnings from net interest margin (NIM) expansion, following the recent OPR cut. In recognition of its performance, the company declared a first interim dividend of 3 sen.
Investment Bank’s View
In light of the encouraging results and improving operational landscape, TA Securities has upgraded its recommendation on the company from Neutral to Outperform, maintaining an unchanged target price of RM1.22. The firm believes that the worst may be over, citing the sequential decrease in impairments and the tapering of civil service-related issues, which are expected to bolster financing disbursements and overall financial stability.
