RCE Capital Bhd rising 6% amid high trading volume to close at RM3.20 on Aug 9. There is a good chance the counter could increase further after its consolidation phase since end-Jan 2024, which saw a high of RM3.40.

RCE has previously recorded their biggest single-day gain in more than two months, following a proposed one-for-one bonus share issue last month. The counter had fared pretty well in the past year, jumping 43.5% to RM3.20. It was trading at a low of RM2.21 last August.

Any increase in price should be supported by stronger net earnings of RM150 million in FY Mar 2025 and RM159.3 illion in FY Mar 2026. These are based on consensus’ expectations that RCE should be hitting those bottomlines. The company is anticipated to perform better after a flattish FY24 results.

For the fourth quarter ended Mar 31, 2024, the group reported a 17% year-on-year lower net profit of RM29.1 million, bringing FY24’s bottomline to RM138.8 million (flattish YoY). The lower profit in 4Q was mainly due to higher operating expenses from facility fee relating to new fundings secured, sales and marketing campaign expenses as well as financing recovery activities. Its allowances for impairment loss on receivables were also higher primarily due to the increase in non-performing financing.

Revenue for 4QFY24 was flat at RM82 million while it rose to RM341 million in FY24 from RM323 million primarily due to higher profit and fee income. Valuation-wise, the stock is trading at a price to book value multiple of 2.83x based on its book value per share of RM1.13 as of end-Mar 2024. Moving forward, the demand for financing is expected to trend higher underpinned by steady economic outlook, a stable overnight policy rate at 3%.

In addition, the pay hike of over 13% and minimum overall income level of more than RM2,000 for civil servants to be effective from Dec 1, 2024 will augur well for RCE. The increase would cost the government an additional allocation of over RM10 billion. There is a strong correlation between government emoluments and RCE Capital’s financing receivables balance. If the effective raise in salaries of civil servants is higher than 15%, earnings estimates for RCE Capital could be revised up, according to analysts.