RCE Capital Bhd has announced a 1-for-1 bonus issue, marking its second bonus issue in less than three years, according to a report by Maybank Investment Bank (Maybank). The company has proposed the issuance of up to 764.9 million bonus shares, which is expected to be completed by the third quarter of 2024, subject to approvals from Bursa Exchange and shareholders.

Maybank has maintained its HOLD rating on RCE Capital with a target price (TP) of RM3.00, citing that while bonus issues do not positively impact operations, they have historically led to increased share prices due to better trading liquidity. The last bonus issue in early 2022 saw RCE's share price rise to nearly RM2.00, highlighting the market's positive reception to such announcements.

The proposed bonus issue will see the company's share capital increase significantly from its current 741.1 million ordinary shares, with the entitlement date yet to be determined. This move follows a similar bonus issue in January 2022, which involved the distribution of 351.5 million bonus shares and 18.3 million treasury shares, demonstrating RCE's consistent strategy to enhance shareholder value.

Investors are also closely monitoring the upcoming civil service salary hike, announced by the Prime Minister to take effect on 1 December 2024. Details of the salary raise, which is anticipated to be ≥13%, will be released on 16 August 2024. Given the strong correlation between government emoluments and RCE's financing receivables balance (R2:0.95), there could be significant upside potential to RCE's earnings estimates if the salary increase exceeds 15%.

Maybank has incorporated a 15% financing growth assumption from end-Fiscal Year 2024 Actual (FY24A) to end-Fiscal Year 2026 Estimate (FY26E) into its projections. The bank's current valuation of RCE Capital at 2.5 times end-Calendar Year 2025 Estimate (CY25E) Book Value Per Share (BVPS) supports the TP of RM3.00, reflecting stable long-term growth prospects.

RCE Capital's share price stood at RM2.92 at the time of the report, with the 12-month price target indicating a potential 8% upside. The proposed bonus issue and the favourable macroeconomic conditions suggest that RCE Capital could continue to deliver value to shareholders.