PP16832/01/2013 (031128) Malaysia Results Review 15 February 2012 Hold (unchanged) Share price: Target price: RM0.515 Wong Chew Hann, CA wchewh@maybank-ib.com (603) 2297 8686 Stock Information RM0.45 (unchanged) Description: Provision of personal loans to government employees, and credit factoring solutions. Ticker: RCE MK Shares Issued (m): 782.4 Market Cap (RM m): 402.9 3-mth Avg Daily Volume (m): 0.93 KLCI: 1,566.05 Free float (%): 47.3 Major Shareholders: % Cempaka Empayar Sdn Bhd 43.4 Aras Kreatif Sdn Bhd 8.3 Historical Chart 0.8 0.7 0.6 0.5 0.4 0.3 0.2 0.1 0.0 Feb-10 Jun-10 Oct-10 Feb-11 Jun-11 Oct-11 Performance: 52-week High/Low RM0.57/RM0.41 RCE MK Equity 1-mth 3-mth 6-mth 1-yr YTD Absolute (%) 8.4 8.4 (1.9) (4.6) 8.4 Relative (%) 5.6 (0.1) (4.8) (8.7) 6.1 Results within; proposes bonus & rights Maintain Hold and target price. 9MFY12 results were in line with core net profit down 13% YoY as net loans contracted 18% YoY due to the ceasation of KOWAJA lending activities for 6+ months. A 1-for-2 bonus and 2-for-5 rights issue of new RCPS will raise shares liquidity and give RCE the capacity to grow. Nonetheless, the operating environment remains tough with net loans continuing to retrace 2% QoQ despite the resumption of KOWAJA lending activities since Jun 2011. Our target price continues to peg the stock to 0.8x historical P/B. Weak overall. RM85m 9MFY12 net profit (-3% YoY) included RM8m gain from the sale of all (e. 35m units) of AmFirst REIT (3Q: +RM2m, 2Q: +RM2m, 1Q: +RM4m). 9M core net profit was down a sharper 13% YoY excluding this one-off. 3Q core net profit fell 10% QoQ and 32% YoY as net loans contracted 2% QoQ and 18% YoY. The sharp YoY loan retracement was due to the ceasation of KOWAJA lending activities for 6+ months (1 Dec 2010 to 8 June 2011) which had affected RCE. The 2% QoQ loan contraction suggests a tough operating environment still despite KOWAJA lending activities having resumed. Revising forecasts. Our unchanged FY12 core net profit forecast of RM100m implies 4Q core net profit of RM23m, flattish QoQ. We however lift our FY12 bottomline forecast by RM2m to include the oneoff gain from the sale of e. 10.6m units of AmFirst REIT in 3Q (we had imputed 1Q-2Q gains). Our FY13-14 net profit forecasts are lowered by 5% p.a. as we now remove RM7m-RM8m dividend income p.a. from its investment in AmFirst REIT. These forecasts have incorporated a 10% net loans growth p.a. assumption, recovering from zero growth in FY12. Bonus and rights. A 1-for-2 bonus and 2-for-5 rights issue of new RCPS (rights ratio is post bonus issue) has been proposed. Assuming RM0.38 issue price per RCPS, RCE will raise up to RM181m in net proceeds of which RM150m will be used to repay bank borrowings (potential interest savings of RM1.5m p.a.). Paid-up capital could grow to 1.12b shares post bonus and 1.68b post RCPS conversion (782m now) raising shares liquidity. The RCPS gives RCE the capacity to grow its business as gross gearing will reduce to 1.89x from 2.64 (Mar 2011). Summary Earnings Table Source: Maybank IB FYE Mar (RM m) Revenue 2010A 255.6 2011A 269.6 2012F 244.1 2013F 269.8 2014F 297.2 EBITDA 118.0 141.5 136.0 135.8 147.9 Recurring Net Profit 87.6 104.3 100.1 99.9 108.7 Recurring Basic EPS (Sen) 11.6 13.3 12.8 12.8 13.9 EPS growth (%) 22.6 15.0 (4.0) (0.2) 8.9 Gross DPS (Sen) 1.8 1.5 1.5 1.5 1.5 PER (x) 4.4 3.9 4.0 4.0 3.7 EV/EBITDA (x) 9.1 7.6 7.9 7.9 7.2 Div Yield (%) 3.4 2.9 2.9 2.9 2.9 P/BV (x) 1.0 0.9 0.7 0.6 0.6 Net Gearing (%) 174.4 149.0 122.2 103.6 94.1 ROE (%) 22.6 24.0 21.8 17.0 16.0 ROA (%) 5.8 6.3 6.0 5.1 5.0 Consensus Net Profit ((RMm) n.a. n.a. 98.2 102.7 115.0 Earnings Revision (%) - core n.a. n.a. - -5.4-5.3 Kim Eng Hong Kong is a sub sid iary of Malayan B anking B erh ad SEE APPENDIX I FOR IMPORTANT DISCLOSURES AND ANALYST CERTIFICATIONS
Summary Results Table Quarterly results Cumulative FY Mar (RM m) 3Q12 3Q11 % YoY 2Q12 % QoQ 9M12 9M11 % YoY Revenue 61.1 77.2 (20.8) 58.8 3.9 180.7 210.7 (14.2) Interest exp (14.2) (19.6) (27.8) (17.2) (17.6) (49.6) (55.5) (10.6) Net revenue 47.0 57.6 (18.5) 41.6 12.8 131.1 155.2 (15.5) Operating exp (11.3) (10.1) 12.5 (10.4) 9.3 (33.3) (35.2) (5.6) Doubtful debt allowance (10.7) (9.8) 9.1 (2.3) 364.6 (13.4) (15.5) (13.6) EBIT 24.9 37.7 (33.9) 28.9 (14.0) 84.4 104.5 (19.2) Interest inc 3.4 3.1 9.7 3.8 (9.6) 10.9 6.9 57.8 Dividend inc - 1.6 NM - NM 1.7 6.1 (72.5) Interest exp (0.0) (0.0) 12.5 (0.0) 0.0 (0.0) (0.0) 35.0 One-offs 2.3 - NM 2.1 12.9 8.2 - NM Pre-tax profit 30.6 42.4 (27.7) 34.8 (11.9) 105.2 117.4 (10.4) Tax (5.9) (9.6) (39.0) (7.9) (25.7) (20.4) (29.8) (31.7) Net profit 24.8 32.8 (24.4) 26.9 (7.8) 84.9 87.7 (3.2) Core net profit 22.4 32.8 (31.5) 24.8 (9.6) 76.6 87.7 (12.6) EPS (sen) 3.2 4.2 (24.3) 3.4 (7.8) 10.9 11.2 (3.1) DPS (sen) - - NM - NM - - NM 3Q12 3Q11 +/- ppt 2Q12 +/- ppt 9M12 9M11 +/-ppt YoY QoQ Net revenue margin (%)* 76.2 73.5 2.7 69.9 6.3 71.5 72.2 (0.7) EBIT margin (%) 40.8 48.8 (8.1) 49.2 (8.5) 46.7 49.6 (2.8) Tax rate (%) 19.2 22.7 (3.5) 22.7 (3.6) 19.3 25.4 (6.0) Balance sheet Dec-11 Dec-10 YoY chg Sep-11 QoQ chg Dec-11 Mar-11 FY-YTD Chg Net loans/receivables (RM m) 942.8 1,146.7 (17.8) 962.8 (2.1) 942.8 1,085.8 (13.2) Gross borrowings (RM m) 828.5 1,229.1 (32.6) 935.4 (11.4) 828.5 1,182.1 (29.9) * = ( [loan financing revenue - related interest costs] / loan financing revenue) Sources: Company, Maybank-IB 15 February 2012 Page 2 of 5
INCOME STATEMENT (RM m) BALANCE SHEET (RM m) FYE Mar (RM m) 2011A 2012F 2013F 2014F FYE Mar (RM m) 2011A 2012F 2013F 2014F Revenue 269.6 244.1 269.8 297.2 Net Fixed Assets 5.4 6.9 8.3 9.5 Interest exp relating to rev (74.6) (80.0) (83.9) (92.3) Invts in Assocs & JVs 0.0 0.0 0.0 0.0 Operating cost (53.5) (28.1) (50.1) (57.0) LT receivables 973.2 1,049.0 1,147.4 1,255.0 EBITDA 141.5 136.0 135.8 147.9 Other LT Assets 101.6 101.6 62.5 62.5 Dep. & amort (1.4) (1.5) (1.6) (1.7) Cash & ST Invts 514.5 513.3 641.4 739.6 EBIT 140.1 134.5 134.2 146.2 Other Current Assets 178.6 182.0 206.9 234.9 Net int (exp)/ Inc (0.0) (0.0) (0.0) (0.0) Total Assets 1,773.3 1,852.8 2,066.5 2,301.5 Associates & JV 0.0 0.0 0.0 0.0 One-offs 0.0 8.2 0.0 0.0 ST Debt 444.7 444.7 489.2 538.1 Pretax profit 140.1 142.7 134.2 146.1 Other Current Liab 89.8 76.2 83.9 92.2 Tax (35.8) (34.4) (34.3) (37.4) LT Debt 738.0 734.5 807.9 888.6 Minority interest 0.0 0.0 0.0 0.0 Other LT Liab 52.4 52.4 52.4 52.4 Net profit 104.3 108.3 99.9 108.7 Shareholders Equity 448.4 544.9 633.1 730.1 Net profit ex EI 104.3 100.1 99.9 108.7 Minority Interest 0.0 0.0 0.0 0.0 Total Cap. & Liab 1,773.3 1,852.8 2,066.5 2,301.5 Turnover Gth (%) 5.5 (9.5) 10.5 10.2 EBITDA Gth (%) 19.9 (3.9) (0.1) 8.9 Pretax Gth (%) 27.4 1.9 (6.0) 8.9 Net profit Gth (%) 18.9 (4.0) (0.2) 8.9 CASH FLOW (RM m) RATES & RATIOS FYE Mar (RM m) 2011A 2012F 2013F 2014F FYE Mar (RM m) 2011A 2012F 2013F 2014F Net Profit 104.3 108.3 99.9 108.7 EBITDA Margin (%) 52.5 55.7 50.4 49.8 Dep. & amort 1.4 1.5 1.6 1.7 EBIT Margin (%) 52.0 55.1 49.8 49.2 Chg. In wkg cap 43.6 (92.8) (115.7) (127.2) Net Profit Margin (%) 38.7 44.4 37.0 36.6 Other ope. CF 0.0 0.0 0.0 1.0 ROAE (%) 24.0 21.8 17.0 0.0 Operating CF 149.3 17.0 (14.2) (15.7) ROAA (%) 6.3 6.0 5.1 0.0 Net capex (0.9) (3.0) (3.0) (3.0) ROCE (%) 6.4 6.3 5.2 5.0 Chg in LT inv (37.2) 0.0 39.2 0.0 Div Payout Ratio (%) 11.3 8.0 8.7 8.0 Chg in oth assets 0.0 0.0 0.0 1.0 Interest Cover (x) NA NA NA NA Investment CF (38.1) (3.0) 36.2 (2.0) Debtors Turn (days) 50.7 60.0 60.0 60.0 Net chg in debt 162.4 (3.4) 117.9 129.7 Creditors Turn (days) NA NA NA NA Chg in other LT liab. 0.0 0.0 0.0 1.0 Inventory Turn (days) NA NA NA NA Oth. Financing CF (11.4) (11.7) (11.7) (11.7) Current Ratio (x) 1.3 1.3 1.5 0.0 Financing cash flow 151.0 (15.2) 106.1 118.9 Quick Ratio (x) 1.3 1.3 1.5 0.0 Net cash flow 262.2 (1.2) 128.1 101.2 Net Debt/Equity (x) 149.0 122.2 103.6 0.0 Opg CFPS (sen) 19.1 2.2 (1.8) (2.0) Free CFPS (sen) 19.0 1.8 (2.2) (2.4) Sources: Company, Maybank IB 15 February 2012 Page 3 of 5
APPENDIX 1 Definition of Ratings Maybank Investment Bank Research uses the following rating system: BUY Total return is expected to be above 15% in the next 12 months HOLD Total return is expected to be between -15% to 15% in the next 12 months SELL Total return is expected to be below -15% in the next 12 months Applicability of Ratings The respective analyst maintains a coverage universe of stocks, the list of which may be adjusted according to needs. Investment ratings are only applicable to the stocks which form part of the coverage universe. Reports on companies which are not part of the coverage do not carry investment ratings as we do not actively follow developments in these companies. Some common terms abbreviated in this report (where they appear): Adex = Advertising Expenditure FCF = Free Cashflow PE = Price Earnings BV = Book Value FV = Fair Value PEG = PE Ratio To Growth CAGR = Compounded Annual Growth Rate FY = Financial Year PER = PE Ratio Capex = Capital Expenditure FYE = Financial Year End QoQ = Quarter-On-Quarter CY = Calendar Year MoM = Month-On-Month ROA = Return On Asset DCF = Discounted Cashflow NAV = Net Asset Value ROE = Return On Equity DPS = Dividend Per Share NTA = Net Tangible Asset ROSF = Return On Shareholders Funds EBIT = Earnings Before Interest And Tax P = Price WACC = Weighted Average Cost Of Capital EBITDA = EBIT, Depreciation And Amortisation P.A. = Per Annum YoY = Year-On-Year EPS = Earnings Per Share PAT = Profit After Tax YTD = Year-To-Date EV = Enterprise Value PBT = Profit Before Tax Disclaimer This report is for information purposes only and under no circumstances is it to be considered or intended as an offer to sell or a solicitation of an offer to buy the securities referred to herein. Investors should note that income from such securities, if any, may fluctuate and that each security s price or value may rise or fall. Opinions or recommendations contained herein are in form of technical ratings and fundamental ratings. Technical ratings may differ from fundamental ratings as technical valuations apply different methodologies and are purely based on price and volume-related information extracted from Bursa Malaysia Securities Berhad in the equity analysis.accordingly, investors may receive back less than originally invested. Past performance is not necessarily a guide to future performance. This report is not intended to provide personal investment advice and does not take into account the specific investment objectives, the financial situation and the particular needs of persons who may receive or read this report. Investors should therefore seek financial, legal and other advice regarding the appropriateness of investing in any securities or the investment strategies discussed or recommended in this report. The information contained herein has been obtained from sources believed to be reliable but such sources have not been independently verified by Maybank Investment Bank Berhad and consequently no representation is made as to the accuracy or completeness of this report by Maybank Investment Bank Berhad and it should not be relied upon as such. Accordingly, no liability can be accepted for any direct, indirect or consequential losses or damages that may arise from the use or reliance of this report. Maybank Investment Bank B erhad, its affiliates and related companies and their officers, directors, associates, connected parties and/or employees may from time to time have positions or be materially interested in the securities referred to herein and may further act as market maker or may have assumed an underwriting commitment or deal with such securities and may also perform or seek to perform investment banking services, advisory and other services for or relating to those companies. Any information, opinions or recommendations contained herein are subject to change at any time, without prior notice. This report may contain forward looking statements which are often but not always identified by the use of words such as anticipate, believe, estimate, intend, plan, expect, forecast, predict and project and statements that an event or result may, will, can, should, could or might occur or be achieved and other similar expressions. Such forward looking statements are based on assumptions made and information currently available to us and are subject to certain risks and uncertainties that could cause the actual results to differ materially from those expressed in any forward looking statements. Readers are cautioned not to place undue relevance on thes e forwardlooking statements. Maybank Investment Bank Berhad expressly disclaims any obligation to update or revise any such forward looking statements to reflect new information, events or circumstances after the date of this publication or to reflect the occurrence of unanticipated events. This report is prepared for the use of Maybank Investment Bank Berhad's clients and may not be reproduced, altered in any way, transmitted to, copied or distributed to any other party in whole or in part in any form or manner without the prior express written consent of Maybank Investment Bank Berhad and Maybank Investment Bank Berhad accepts no liability whatsoever for the actions of third parties in this respect. This report is not directed to or intended for distribution to or use by any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation. 15 February 2012 Page 4 of 5
APPENDIX 1 Additional Disclaimer (for purpose of distribution in Singapore) This report has been produced as of the date hereof and the information herein maybe subject to change. Kim Eng Research Pte Ltd ("KERPL") in Singapore has no obligation to update such information for any recipient. Recipients of this report are to contact KERPL in Singapore in respect of any matters arising from, or in connection with, this report. If the recipient of this report is not an accredited investor, expert investor or institutional investor (as defined under Section 4A of the Singapore Securities and Futures Act), KERPL shall be legally liable for the contents of this report, with such liability being limited to the extent (if any) as permitted by law. As of 15 February 2012, KERPL does not have an interest in the said company/companies. Additional Disclaimer (for purpose of distribution in the United States) This research report prepared by Maybank Investment Bank Berhad is distributed in the United States ( US ) to Major US Institutional Investors (as defined in Rule 15a-6 under the Securities Exchange Act of 1934, as amended) only by Kim Eng Securities USA, a brokerdealer registered in the US (registered under Section 15 of the Securities Exchange Act of 1934, as amended). All responsibility for the distribution of this report by Kim Eng Securities USA in the US shall be borne by Kim Eng. All resulting transactions by a US person or entity should be effected through a registered broker-dealer in the US. This report is for distribution only under such circumstances as may be permitted by applicable law. The securities described herein may not be eligible for sale in all jurisdictions or to certain categories of investors. This report is not directed at you if Kim Eng Securities is prohibited or restricted by any legislation or regulation in any jurisdiction from making it available to you. You should satisfy yourself before reading it that Kim Eng Securities is permitted to provide research material concerning investments to you under relevant legislation and regulations. Without prejudice to the foregoing, the reader is to note that additional disclaimers, warnings or qualifications may apply if the reader is receiving or accessing this report in or from other than Malaysia. As of 15 February 2012, Maybank Investment Bank Berhad and the covering analyst does not have any interest in in any companies recommended in this Market themes report. Analyst Certification: The views expressed in this research report accurately reflect the analyst's personal views about any and all of the subject securities or issuers; and no part of the research analyst's compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed in the report. Additional Disclaimer (for purpose of distribution in the United Kingdom) This document is being distributed by Kim Eng Securities Limited, which is authorised and regulated by the Financial Services Authority and is for Informational Purposes only.this document is not intended for distribution to anyone defined as a Retail Client under the Financial Services and Markets Act 2000 within the UK. Any inclusion of a third party link is for the recipients convenience only, and that the firm does not take any responsibility for its comments or accuracy, and that access to such links is at the individuals own risk. Nothing in this report should be considered as constituting legal, accounting or tax advice, and that for accurate guidance recipients should consult with their own independent tax advisers. Published / Printed by Maybank Investment Bank Berhad (15938-H) (A Participating Organisation of Bursa Malaysia Securities Berhad) 33rd Floor, Menara Maybank, 100 Jalan Tun Perak, 50050 Kuala Lumpur Tel: (603) 2059 1888; Fax: (603) 2078 4194 Stockbroking Business: Level 8, Tower C, Dataran Maybank, No.1, Jalan Maarof 59000 Kuala Lumpur Tel: (603) 2297 8888; Fax: (603) 2282 5136 http://www.maybank-ib.com 15 February 2012 Page 5 of 5