RCE Capital in the spotlight as it might surpass its previous high

RCE Capital Bhd surged to a 52-week high of RM3.40 in January. In the past year alone, the company gained 40.8% to close at RM3.14 on July 23. The counter lost some ground to a low of RM2.54 this year.

It was the counter’s biggest single-day gain in more than two months, following a proposed one-for-one bonus share issue. This was on the back of heavy trading activities as some 2.54 million shares were traded, which was almost 6 times the trading volume’s 20-day moving average.

If the proposal goes through, some analysts expect RCE Capital’s target price will be adjusted to RM1.56. The latest bonus share would be the company's second issue in more than two years. In January 2022, RCE Capital issued 19 bonus shares for every 21 ordinary shares, and distributed one treasury share for every 20 ordinary shares.

The movement in its share price is normally linked to increase in civil servants’ salaries. As such, investors should watch for details of the salary increase to be announced on Aug 16.

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.

On May 1, Prime Minister Datuk Seri Anwar Ibrahim announced an increase in civil servants’ salaries by at least 13% from Dec 1 this year. The increase would cost the government an additional allocation of over RM10 billion.

The non-bank financial institution experienced a marginal dip in earnings for the financial year ended March 31, 2024 (FY2024) after 10 years of uninterrupted earnings growth. Its net profit were flattish at RM138.75 million versus RM138.78 million in the previous year despite registering a 5.6% increase in revenue to RM341.66 million. Its 4QFY2024 net profit fell 16.6% year-on-year to RM29.06 million and 15.9% quarter on quarter.

This was its lowest quarterly profit since 1QFY2021, dragged by higher allowances for impairment loss amid an increase in non-performing financing (NPF), as well as greater operating expenses. Its financing, which normally tracks the banking industry’s overall loan growth, grew at a marginal 3.9% to RM2.1 billion in FY2024. This was slower than the industry’s 6% expansion over the same period.

Investors may want to consider putting in some money in RCE Capital purely on expectations of a hike in civil servants’ salary, which would highly likely boost the sentiments on the company.