Choivo Capital


Choivo Capital
Publish date: Sat, 15 Jun 2019, 03:57 PM

For a copy with better formatting, go here, its alot easier on the eyes.

The Black Swan Hidden in RCE CAPITAL (RCECAP)



I never really expected this day to come, or for me to do it in such circumstances (I would have preferred selling it for much more). However, over the last week, I cleared my entire position in RCECAP.


Normally, I wouldn’t be inclined to explain to the public why I did so, however, as I had written the article below, i felt morally obligated to do so.


Lets Talk About RCE CAPITAL


Make no mistake, the management is great. I am personally very happy with how the company is managed.


Investor Relations is very forthcoming and easy to speak with. In addition, the Credit Culture facility (now cancelled) gave me a peek in terms of their thought process when it comes to how they consider risk/reward for each loan.


A 10% credit facility to a company giving out personal loans at 11% in Singapore. What a deal!


This is incredibly attractive, since the risk-free rate in SG is like 1.5-2%, while Malaysia’s is like 4%. In addition, RCE makes roughly 6.5% net on their loan books (second highest in Malaysia, the first is Elk-Desa), 10% would be unbelievable.


And due to the sheer impossibility of having impairments of less than 1% doing personal loans, it seemed extremely likely that RCECAP would have been able to takeover the entire company for a song when they inevitably failed to meet the interest payments in full.


If RCE’s impairment rates for its Malaysian books is comparable as a benchmark (its not), RCE would end up owning both an SGD loan book paying out 6.5% net, AND a SG Personal Loan company.


Pretty decent deal. No surprise it didn't work out, you'd have to be a fool of the highest degree to take the other end of that deal.


Its not the kind of a mindset you want in a venture capitalist, but definitely one you want in an financial institution.




The Black Swan

Despite waxing lyrical about the company in my previous company and in the paragraph above, I still sold my position as the fundamentals have changes somewhat last Saturday.


In my opinion, the real risk that lies in RCE Capital was in the political aspect, and this was one aspect I have always tracked very closely, along with the civil servant loan market.


It was last Saturday when something caught my attention.


8/6/2019 (THE STAR) - Civil servants spend more than half of salaries on repaying debts

8/6/2019 (THE STAR) - What is Angkasa

8/6/2018 (THE STAR) - Syndicated loan scam 

13/5/2018 (THE STAR) - Be wary of Angkasa loan offer, civil servants told


In just one day, 3 unflattering articles on co-operative loans appeared on “The Star” (and I also found an unflattering article written in May). Nothing about what they said is unknown.


Chances are, you only went for a Koperasi's loan because you can’t get one from Bank Rakyat or MBSB, and so there is almost no way that you would get a full payout. A 20-30% haircut is normal and stated in the contracts.


However, like the process of making sausages or industrial farming, its one of those uglier things that people don’t talk about.


To make it so public felt a little like the ground moving. Especially since “One particular prominent Malaysian cooperative” sounded like “Yayasan Dewan Perniagaan Melayu Perlis Berhad” which is funded by RCECAP. They are the biggest Koperasi after all.


Just 4 days later this appears.


13/6/2019 (THE STAR) - Probe on loan scam, co-operative commission acts


I cleared the rest on that day.




Why does this matter?

One of the things I always tried to find out, was who owns these Koperasi's.  However, it had proven quite difficult.


The thing one should note is, these Koperasi's, if active with good volume, are an incredibly lucrative businesses.


Their job is just to take a commission for each loan given, with no skin in game since they don’t hold the loan book.


Often, it’s the financial companies backing them, like RCECAP that is even doing the sales and credit vetting.


They are wholly disposable if not for their ANGKASA codes (which are needed to do direct salary deduction). And RCECAP or the other financial companies are essentially just renting the codes.


I had previously naively assumed that it was run like a typical ko-operasi/savings & loan, where depositors have shares equal to the amount deposited. However, recently, I’ve learnt from my ex-banker friend, that this is not really the case.


For cooperatives, there are about 800 licenses, and only about 30 are significant business. Back in the day, the government used to give out a Koperasi license/ANGKASA code to UMNO Division heads, and it was (and still is) a good source of income for the party.


And “Yayasan Dewan Perniagaan Melayu Perlis Berhad” the biggest one which is funded by RCECAP, is apparently owned by Dato' Sri Dr. Shahidan bin Kassim (I don’t have proof), the UMNO warlord who was accused of child molestation, but was ultimately given a discharge not amounting to an acquittal by the Kangar Sessions Court for the allegation of molesting of an underage girl after the victim retracted her report, for one reason or another.


In addition, my friends in MOF have also indicated to me that the government being unhappy about Koperasi personal loans by civil servants and they are thinking of ways to solve it.


These news feels a little like positioning before the big whacking.





What actions could the government take?

Well, so what actions could the government take to reduce the loans?


The more common ones are as follows and was done in 2014.

  1. Decrease the personal loan length from 10 years to say 5 or less.
  2. Lower the proportion of civil servants’ personal loans, in the loan portfolio of banks, making it harder to loan money or buy Sukuk from companies like RCECAP.
  3. Lower the maximum salary deduction / garnishment from 60% to 40% or so.


In 2014, the losses from MBSB and lower profit in RCECAP, is due to these companies in being a bit cheeky and giving out personal loans that have actual lengths that are longer than what was allowed. The plan was to keep it off the system first, and to extend the tenure say 5 years down the line.


However, there was a directive from the top disallowing this method, despite all the loans given out, resulting in the massive impairments. After that lesson, they all started to toe the line.


As the above methods apply to future loans and not current, it would not have any impact on the current loan book unlike 2014 but would affect growth.


However, there is are two other methods, I don’t think too many have considered.

  1. Making koperasi’s pay a high lease for the codes, ensuring most koperasi’s shut down.
  2. Opening access for these codes to deposit taking financial institutes such as Maybank, CIMB etc. The banks have been lobbying for access for a long time.


Done in combination, especially the second method, would ensure that civil servants get a better rate (since Maybank etc have way cheaper cost of funds, and can accept a higher NIM), and indirectly (this is important as you can’t just take away the codes unless they broke the law) killing off ALL Koperasi’s since they have a cost base and marketing / eyeballs disadvantage.


Given that this is a Pakatan Harapan government, they are incentivized to shut down these Koperasi’s and further cripple UMNO’s source of funding, and to top it off, they can couch it as being it betting a good deal for the civil servants and the people (which it actually is).


Of course as EPF is a majority holding in MBSB and MOF owns Bank Rakyat, its not like there is no cost to it. However, EPF & PNB etc also control and hold CIMB, Maybank etc, its more like a left hand to right hand transaction. 


This changes the dynamics completely.





Given this change in fundamentals, the valuation in RCECAP changes quite significantly. Realistically, there is a good probability that RCECAP is now only worth its current loan book, which pays out 6.5% net.


Well, if I’m only buying the loan book, I’d like a 30-50% discount to book.


These days, with the sheer amount of opportunities globally. For example, Kraft Heinz and Intel is only trading at 6 and 10PE respectively, with earnings yield over Enterprise value something like 11 and 13 times, not a bad price at all.


It has become increasingly difficult for me to justify holding RCECAP, especially with the change in fundamentals.

Sucks to not be able to take that lovely 5 cent dividend though.

Disclaimers: Refer here.


Facebook: Choivo Capital



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2 people like this. Showing 18 of 18 comments


I know of a Public Sector Cooperative where a civil servant in applying for a personal loan has to obtain signed sureties from two ELIGIBLE members, which at times, can be hard to come by. I don't know whether this condition applies to all cooperatives. It seems that those running the cooperatives, who are usually ex-civil servants, tend to treat them as their own personal banks. Expect another government bailout if things get critical.

2019-06-15 17:16

Choivo Capital

Yeah guarantors need to be civil servants usually. And if the original lender don't pay, direct deduct from the guarantor salary.

How do you mean by critical, and why would the PH govt bailout?

2019-06-15 17:25


Under stingy PH govn hard to get pay rise or BSH reduce. So loan defaulters will increase?

2019-06-15 17:32


If civil servants loan provision is good bussiness, mbsb would not exit to be full fledge islamic bank and bank islam claimed to intend to reduce this exposion.

2019-06-15 18:38

Choivo Capital

He says it cracked its skull 5 months ago, i say it got influenza last saturday, and may get worse as the hospitals nearby are shit.

I was right when i bought it, when i held it, and when i sold it.

2019-06-15 19:52


Maybe after you threw all your shares in rcecap then the share price will start moving up...hahahahaha....that happens all the time....hahahaha.....

2019-06-15 22:24



Thanks anywhere for sharing.

Happy weekend all.

2019-06-15 22:24

Choivo Capital

Hahahahah possible. No idea lah. This was a fundamental buy.

It may be worth thinking as a trading buy, if i were ever to pick up trading tendencies.

joekit Maybe after you threw all your shares in rcecap then the share price will start moving up...hahahahaha....that happens all the time....hahahaha.....
15/06/2019 10:24 PM

2019-06-15 23:50

(US/CHN trade war doesn't matter) Philip

I think the mark of good investor is someone who never stops learning something new every day, improves his thought process and absorbs new mental models.

In a nutshell the points you made are all facts which made me not invest in rce capital. And you are right, it may not happen today, it probably won't happen this year. But 5-10 years from now, it will definitely change.

I'm not a good predicter of time. But I believe I'm an ok judge of long term trends. All I can say is don't be disheartened if once you sell your shares the price goes up for a little while. In the end the long term is what matters.

2019-06-16 00:56

(US/CHN trade war doesn't matter) Philip

As for Intel, my advise is to not invest in it. Intel the name is very different from intel the company.

For tech companies the ability to pivot, to push new technologies and to efficiently push your team to be more efficient than the competition means everything.

In every single way Intel has underperformed. For a company that was the leader in semiconductors advances it has declined in many uninspiring ways. Intel inside today means expensive and lower quality.

Intel missed mobile.(tsmc & foxconn took over).
Intel missed graphics. (AMD turned their fortunes on gpu processing).
Intel's 10nm wafers were years late to the party, while competitors with smaller R&D budgets were able to produce further advancements than intel.

For me it's all about the node race. And it has proven that the bigger company with larger resources does not seem to have the competitive advantage that smaller companies have.

2019-06-16 01:15

(US/CHN trade war doesn't matter) Philip

I think the best advice I could give new investors is to first look at the business itself, then into the price. Because the price fluctuates whole the business model rarely changes, if you can monitor the good businesses, when the right price comes you will not hesitate to put all your money in.

But buying a stock based on PE, NTA alone can prove very dangerous if you do not understand how the businesses got it's lending status the way it had.

2019-06-16 01:21

Choivo Capital

Thanks phillip,

I'm still studying intel. So i have not casted my full line

One thing to note is this. Its not so much about the node (which is very important) but also about the architecture.

Why is Nvidia Turing, which is on 12nm, still vastly outperforms AMD's which are on 7nm, in terms of power and efficiency?

That is the thing i'm banking on.

In every major area intel is in, they are the market leaders, whether servers and CPU.

And i severely doubt AMD can ever beat intel in CPU or nvidia in GPU. They simply dont have enough money, and they dont make enough money to reinvest into R&D the same way intel and nvidia does.

Now, Intel is planning to go into graphic processing, a market where the leader Nvidia makes 30% roe, and unbelievable amount, because they simply had no decent competitor.

Intel knows what its takes to do architecture, they make the vast majority of CPU's and would be more than capable of making graphics cards that are more compatible with their CPU's. And with the margins available, they would be more than able to sell cpu and gpu jointly.

Is it probable that they can achieve this? I think more likely than not. I still have some studying to do though.

However, at 10PE, i think i'm willing to take a position on it, and build it further as my confidence level increase, or maintain it if it doesnt.

2019-06-16 02:58


Hi, why did you mention that the Credit Culture facility is now cancelled? Is it announced?

2019-06-18 10:11

Choivo Capital

Yes. It was announced.

2019-06-18 16:01


Bro, Can share link? Can't seems to find it

2019-06-18 20:20


Give you a like even though you are an arrogant asshole since you spent time to follow up on your buy calls, and that benefits the investment community.

2019-06-18 20:36


Nice reading. To be frankly i also noticed that few news by KPDNKK that indicated in TV which saying all those koperasi is giving misleading info when all gov servant apply loan last year.

2019-06-18 20:40

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