KLSE: RCECAP (9296)       RCE CAPITAL BHD MAIN : Finance
Last Price Today's Change   Day's Range   Trading Volume
2.70   +0.01 (0.37%)  2.68 - 2.73  89,200
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  7 people like this.
Foker Hahaha, 5 years later we talk
19/02/2021 8:26 PM
Foker I will be there to laugh at u
19/02/2021 8:26 PM
Foker Observatory sifu will agree with me
19/02/2021 8:27 PM
Learner King @Foker Ok from the way u talk i know im wasting my time talking to you. Bye
19/02/2021 10:32 PM
kywoo I used to own some Nestle, Hong Leong Industry and Maybank shares. I have sold all my Nestle shares and made a small fortune from it. I have also sold my Maybank shares but made a loss from it. Maybank was really a big disappointment to me especially when they skipped dividend payment and reported lower profits. Now I am holding mainly 3 counters ie Allianz, RCECap and Hong Leong Industries. I am allocating about 30% of my resources to each of the counter as I happen to like them equally. As Warren Buffet said, holding 3 or 4 counters at any point of time is a better investment strategy than owning a lot of counters. If one has say 20 or 30 counters one would not be able to monitor their performance and hence lose control of one's concentration.
20/02/2021 12:41 AM
observatory Mr kywoo, thanks for sharing your investment decision. Not sure why my earlier comment disappeared. I deleted and reposted after correcting typos. I just found the reposted message missing.


Mr. Kywoo! It’s nice to see you joining. You’re a very knowledgeable and focused investor. It’s a real pleasure to have you sharing your opinion and pointing out where I went wrong. If you don’t mind I'd like to take this opportunity to dwell into those points further details just to clear some doubts.

On point 1, yes I’ve overlooked it. It makes more sense now. Using Loanstreet flat to effective rate calculator, a 4.99% fixed rate over a 10-year tenure works out to have an effective rate of 8.67%.

4.99% fixed rate demands taking a takaful. Without takaful, it is 5.85%, equivalent to an effective rate of 9.99%.

The only fee mentioned is a stamp duty of 0.5% of total financing. The product disclosure sheet states that no collateral is required although a guarantor is needed.

So if the above calculation is correct, the effective rate is slightly under 10%. But not reaching 12% as in your experience. It’s still lower than 13% to 14% by RCE that I read somewhere. But that was quite a while back and RCE might have adjusted its rate down too as borrowing cost reduces.

Back to the question that prompts me to raise this example in the first place. Are Bank Rakyat, Bank Islam, BSN etc have the means and incentives to lower pricing and/or lending standards among public sector employees? How could RCE defend its profitability and market share, although it certainly helps that RCE has good management and pride itself for speedy loan approval.

On Point 3, you’ve misquoted me when you wrote “You have said that RCECap has enjoyed a PE of 6.5 in the past years and you are quite happy with that”.

What I wrote was “the past 5 year average PE was only 6.5X”. From the chart I saw, the forward PE over the last 5 years went as high as 9 to 10 times and as low as below 5. The average forward PE is 6.5X. (Median forward PE would tell a better story but I don’t have the data).

As I’ve commented back on Jan 1 and again today, I deemed current forward PE that is close to 9X as fair. Fair means I’m happy to hold, but not topping up or selling. If for no fundamental reason the share price is back to around 6.5X forward PE (which is RM0.33 * 6.5 = RM2.14), I personally will feel it’s undervalued and will top up.

So our difference is at 9X to 10X is undervalued for you and fair for me. But that is our personal opinions. The market price considers factors besides what retail value investors think, such as liquidity. Yes, the market could be “wrong” in the last 5 years. By 2026 we shall see in the new PE chart of the preceding 5 years whether the average PE gets “corrected”.

This brings me to a very practical question. Mr. Kywoo, not sure if you still remember that we’ve once discussed Allianz and HLIND, the two other companies that you’ve viewed as grossly undervalued. I also happen to like both companies, except HLIND management due to its cash hoarding.

Comparing these three companies as of today:
HLIND: share price RM8.15, TTM PE 17X (was 10X pre-Covid), ROE 9% (was 20% pre-Covid), dividend yield 5.2% (42 cents), net cash RM4.27 per share.
Allianz PA: share price RM13.90, TTM PE 9X (after dilution), PB 1.1X (after dilution), ROE 13%, dividend yield 5.0% (69.6 cents)
RCE Capital: share price RM2.78, TTM PE 9X, PB 1.4X, ROE 16%, dividend yield 4.3% (12 cents)

Assuming you have not held these stocks earlier, given a sum of capital, how many percent would you allocate into each of them?

This is a sincere question. I asked because eventually, stock investment is not carried out in isolation without relative comparison. Besides we both like these three companies. The allocation decision will reflect relative preferences.
20/02/2021 1:19 AM
observatory Mr kywoo, thanks for sharing. I see you are very confident with a concentrated portfolio as you’ve studied each one in depth. As I hold more stocks, I experience the challenge you mentioned.

Like you Nestle used to be my favorite holding, and I was reluctant to part even as valuation became very expensive. But I completely sold it in March to switch to many other bargains and never look back since.

Let me also put forward my 2 cents on how I would allocate between HLIND, Allianz and RCE if they are the only choices. If I start from a clean slate today, I will probably be 1/2 Allianz, 1/3 HLIND and 1/6 RCE.

Putting valuation aside, I have more confidence for Allianz to maintain good governance and capital discipline over the long term as this will be demanded by its parent. Today HLIND will be a recovery play for me. The net cash is also a potential positive wild card. As for RCE, even though I believe its valuation is only fair at the current level, my approach is usually to take a foothold when I come across a good company and observe it over time. Besides Buffett once advised buying good companies at fair prices.

Of course, this is just hypothetical. As I’ve started with them much earlier, I also own them in roughly equal proportion, besides a range of other stocks.
20/02/2021 1:38 AM
Xxxting any advice for buying in tp ?i wanna buy in this counter but it might to high right now
20/02/2021 3:08 AM
observatory Guys, check out The Edge today. Just as we debated the merits of RCE, their weekly edition published an article "RCE Capital shines in adversity".
20/02/2021 6:49 PM
donald770 Overall still room for going north. Recent issue esos is a. plus point.
22/02/2021 6:50 AM
Dragon88 good fundamental but price not moving much .....
12/04/2021 3:11 PM
Learner King its normal for this counter, it only will move when close to Quarter Report time
13/04/2021 5:18 PM
sheldon Too many ESOS diluting the earnings and stunting the share price.
20/04/2021 9:19 AM
up2_sky may i know QR out by when?
18/05/2021 9:53 AM
Goh123 Dividend 7cen
25/05/2021 5:45 PM
Goh123 Gogo rcecap
25/05/2021 5:46 PM
ooihk899 Q4 result good mah. That's why dividend increase loh.
25/05/2021 5:51 PM
Goh123 Rm3.00
25/05/2021 6:31 PM
Moolala solid
25/05/2021 6:47 PM
nextan Thursday 3.00 coming lioa
25/05/2021 7:40 PM
Moolala 7c in july + 7c in Nov = 14c dividend this year
26/05/2021 9:16 AM
nextan Very good company, longterm tp 5.00
26/05/2021 9:59 AM
kywoo There is hardly any counter in Bursa that can show a steady and consistent growth in net profits and dividend in the past 6 years despite economic uncertainty. Before 2015, RCECap had some rough times and the dividends then were miserable. However, after some restructuring and change in management strategy since 2015, the company never look back but continue to grow from strength to strength. Even very good companies like Nestle, Maybank, F & N and Hong Leong Industries etc suffered downturn in profitability in 2020 because of the covid pandemic. However, RCECap was hardly affected but continued to strengthen.

The average PE of Bursa's counters is around 15. Some counters are in fact trading at PE of over 50. I really cant understand why the company's PE has always been under 8 or 7. This fantastic company should be given a PE of around 10 at least. One would only give a PE of 7 or 8 to a company that is without any growth prospect in profit or dividend or perhaps to a company with high volatility or uncertainty in profitability. This is certainly not the case with this company.

The market can be irrational in the short term but will be rational in the long run. I am sure the market will award a higher PE to RCECap in the medium term. Perhaps in the PE region of 11 to 14.
26/05/2021 11:50 AM
Moolala I second that
26/05/2021 12:19 PM
nextan Sir if the PE 15 how much is the tp?
26/05/2021 2:26 PM
Moolala you can calculate yourself, use trailing EPS x PE
26/05/2021 5:13 PM
nextan Thanks bro...
26/05/2021 7:09 PM
Goh123 3.70?
26/05/2021 7:53 PM
zigua 290!
02/06/2021 5:11 PM
Moolala major shareholders buying shares, they know business is going to be good and share price is undervalued
03/06/2021 10:32 PM
kakashi1888 @nextan @Goh123.... if PE 15 then the share price would be around RM5+-. Hope this help you. Cheers
04/06/2021 12:59 AM
Goh123 Major shareholder buy back. ... something want happen?
08/06/2021 6:35 PM
Sureinvest I think so. I think they are going to privatize this cash cow.
08/06/2021 6:37 PM
ming Yea.. but price now alrdy exceed NTA. Even privatise dont think will offer good price
08/06/2021 6:42 PM
kelvin17 there is basically no asset why should the boss wanted to privatise , he can set up another similar co at little cost instead of paying us rm 3
10/06/2021 5:01 AM
Bgt 9963 Hoot9e...!
10/06/2021 8:30 AM
stevenlowcb esos for staffs priced at RM 2.17 tomorrow list
10/06/2021 10:46 AM
JayC88 hopefully got chance to buy tmr
10/06/2021 12:51 PM
Goh123 Major shareholder buy in again huat ar
11/06/2021 5:24 PM
Moolala good earnings up ahead
11/06/2021 6:55 PM
observatory Published in The Edge today. "Positive views on RCE Capital maintained, despite FMCO"
12/06/2021 2:59 PM
Moolala The Edge has been publishing quite a few articles on RCEcap as of late, hopefully more fund managers will notice this gem and push the price up higher
12/06/2021 3:03 PM
observatory I’ll watch out for these few factors:

1. Revenue growth – can expect little growth given the loan book growth has slowed considerably. The management has turned cautious even before the pandemic. But I agree as it’s better to be too cautious than overly aggressive in this personal loan business

2. Asset quality – continues to hold up very well. It’s helped by the job security of its customer base (civil servant) where repayment is mostly through salary deduction.

3. Interest rate – It has benefited from lower funding cost in the past few years during the interest rate down cycle. But 10Y Malaysian government bond yield has recovered from the 2.5% low last year to current 3.2%. How fast will it rise in future, and how might it affect future cost of borrowing and therefore the net margin?

4. Valuation – This is a contentious topic. Some investors here feel that it’s undervalued. Based on Maybank’s projection of FY22E book value of RM2.37, currently RCE trades at 1.24X PB against expected FY22E ROE of 15.1%.

Instead of comparing against valuation of another lender like Aeon Credit (which stirs up a different kind of disagreement with AEONCR investors), I look up at BIMB, which also offers a lot of personal loan to civil servants (although also other banking, stock brokerage and insurance thrown in).

AM Invest projects 2021E BV at RM4.08, which is 0.84X PB, against FY21E ROE of 12.8%. In this not perfect comparison, RCE Capital doesn’t look too much undervalued in a relative sense. Besides, BIMB being a larger cap stock and more liquid could attract larger funds, and therefore in theory should enjoy higher valuation.

Anyway, like it or not, the share price is determined by the market. For me it's good enough to just hold and collect dividends regardless of share price movement, as long as fundamentals remain sound.
12/06/2021 3:56 PM
kywoo I do not agree that we should emphasize too much on the price versus book value factor in determining the fair value of a profitable and well managed stock. We should look at the company as an on going concern and not on a liquidation basis. If a company is not doing well and has been losing money every year, then the book value or net asset value becomes important. If the net asset value is much higher compared to the share price, it makes sense for some party to take over the company and strip its assets for sale. This is especially true for non performing property companies.

Take for example the net asset value of Nestle Malaysia. It is only 3.16 and yet the share price today is 135.4. Hence, the share price is 43 times its net asset value. This is because everyone expect Nestle to operate indefinitely over the foreseeable future and liquidation of its assets as unlikely.

The same principle should apply to RCE Capital. As the company is well managed and has a track record of increasing profit and dividend over the years, the more important consideration would be PE ratio and dividend yield. Barring unforeseen circumstances, the company is expected to operate well into the foreseeable future and continues to grow. Hence, the book value to price ratio becomes less relevant.

As far as I am concerned, if the PE ratio of this company is well below 10 and its dividend yield is above 5.5%, I will continue to accumulate this counter slowly but surely. In fact, I started collecting this counter at around 1.60 early last year because I was attracted by its fundamentals. My only limitation is availability of cash to buy more.
15/06/2021 9:51 PM
observatory Hi kywoo, I certainly agree RCE Capital is well managed.

I cited the PB and ROE valuation method not because I value it on liquidation basis, but because it’s commonly used for most financial stocks. Maybank and RHB analysts also use this method to derive their TPs for RCE.

Thanks for sharing your investment journey on RCE. I could imagine adding this stock if I have not owned it as I feel it’s fairly valued (though you think it’s still undervalued). But like you, I’ve accumulated before Covid-19, though not anymore now given it’s one of my top holdings and I want to avoid too much concentration.
16/06/2021 12:00 AM
JayC88 rm3 surely is a tough nut to crack, but i'm happy buying up the dips. good one to hold long term and reap the dividends.
17/06/2021 6:19 PM
observatory Last Sat The Edge ran an article with the title “Bank Rakyat’s continued reliance on personal financing raises questions”. It talks about the space of personal financing which could provide useful info to RCE Capital shareholders.

I summarize the key points as below:

1. Bank Rakyat has a personal financing portfolio of RM59 billion, making up the 76% of total financing portfolio of RM78 billion.
2. For comparison, the size of Malaysian personal financing/ loan is RM104 billion. (RCE Capital’s portfolio is only RM1.7 billion)
3. Gross impaired financing is 2.12% (total portfolio). Compare against RCE Capital GIL at 4.0%
4. A BNM study in 2018 showed that Malaysian civil servants spend more than half their monthly salaries repaying debts compared with one-third for average borrowers.
5. Personal financing amounted to 34% of civil servants’ total debt as opposed to national level of 15%
26/06/2021 7:08 PM
Moolala Thanks for sharing
27/06/2021 2:59 PM
kywoo Thanks for sharing Observatory. I think RCE Capital has learn an expensive lesson in 2013. They were then too aggressive in penetrating the loan market to civil servants. There was no proper internal controls. As a result of some changes to the lending rules, they made some big write offs. Since then, they are very careful in their lending, limiting the size and tenure of their loans.

It appears to me that they do not want quantity but rather quality in their loan portfolio. They try to control their portfolio growth to no more than 10% per annum. At the moment, their portfolio size of RM1.7 billion represent less than 2% of the total market potential. A lot of room for growth but they are in no hurry. I have full confidence in their management. Slow, steady and profitable.
29/06/2021 10:44 PM
C 88 https://malaysiastock.biz/Company-Announcement.aspx?id=1330501

30/06/2021 8:12 PM

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