RCECAP Quarterly Report Analysis

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RCECAP posted a net profit of RM22.8m in 1Q21 compared with a net profit of RM24.1m in 1Q20 due to lower revenue of RM2.2m and additional allowance for impairment of RM2.6m. Extrapolated profits stand at RM91.3m (-17% YoY).

Lower Revenue - lower RM2.1m and RM1.6m net fee and early settlement profit income respectively given the restricted business activities since the Movement Control Order on 18 March 2020.

Additional Impairment - additional allowances for impairment of RM2.6m recognized to take into account the unfavourable impact arising from the further contraction of the forecasted Real Gross Domestic Product.

Prospect - Since the Recovery MCO (RMCO), the Group has launched sales and marketing initiatives to boost disbursements. Besides, there is a increase in demand in financial applications during RMCO. I believe that RCECAP's business performance is able to back to pre-COVID levels in subsequent quarter. 

Impact of Covid-19 - Operations were slightly affected by MCO, but I deemed it as an one-off impact. I believe that RCECAP's business model of providing personal loans financing predominantly to civil servants and collecting repayment through direct salary deduction safeguards its asset quality.

Valuation & Recommendation

Maintain BUY with a target price of RM2.15 - based its base 4-year average P/E, with the assumption that RCECAP's business performance is back to pre-COVID levels in subsequent quarter. 

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