• Maintain BUY, higher MYR2.00 TP from MYR1.90, 14% upside and c.4% yield. Results were broadly in line with expectations, at 102-103% of our and Street’s estimates. A second interim DPS of 4 sen was declared, bringing FY22 (Mar) total DPS to 11 sen, or a 41.2% dividend payout ratio. We understand that funding cost is actively managed through the utilisation of revolving credits as a comparatively cheaper cost of funds, and there is no immediate need for sukuk issuance. We continue to like its resilient asset quality, consistent earnings, and dividend deliveries.

• FY22 results in line. RCE Capital reported 4QFY22 net earnings of MYR31.5m (-9% QoQ, -7% YoY), bringing FY22 net earnings to MYR133.2m (+6.8% YoY). The QoQ weakness is mainly from higher allowance for impairment on financing booked in 4QFY22. We deem these results in line with our and Street’s estimates at 102-103%. A second interim DPS of 4 sen was declared, bringing FY22 total dividends to 11 sen, representing a 41.2% dividend payout ratio.

• Operational highlights. 4QFY22 PIOP was flattish (-1.9% QoQ, +1.8% YoY). Operating income declined 3.3% QoQ (+1.9% YoY) on lower fee income (due to less favourable product mix) while CIR improved to 21.6% from 22.7% on absence of ESOS charges – which were seasonally recorded in 3QFY22 – leading to lower overheads. That said, the YoY and QoQ weakness in 4QFY22 bottomline mainly came from the normalisation of allowance for impairment on financing. 4QFY22 saw a higher MYR5.9m impairment (3QFY22: MYR1.9m, 4QFY21: MYR0.6m), with credit cost rising to 125bps. With that, ROE declined 2ppts sequentially to 14.7% from 16.7%.

• Receivables and asset quality. Sequentially, gross financing grew at a faster pace of 0.9% QoQ (+1.8% YoY) vs +0.5% in 3QFY22. We understand that collection remains robust despite the festive period. Asset quality remains solid, with the NPL ratio at 3.8% (flat QoQ) and LLC at 163%.

• We lift FY23-24F by 4% and 1%, mainly on balance sheet changes as we updated the latest financials, while keeping our FY23-24F loan growth assumption unchanged at 4%/5%. As a result, our GGM-derived TP is revised higher to MYR2.00 from MYR1.90. Our TP incorporates a 2% premium to our intrinsic value for its 3.10 ESG score, based on our proprietary methodology.

• Downside risks to our call include: i) Higher-than-expected credit cost and ii) weaker-than-expected financing growth and net financing margins.

Source: RHB Research - 31 May 2022