KUALA LUMPUR: Public Investment Bank Bhd (PublicInvest) is optimistic over financing solutions company RCE Capital Bhd's long-term growth driven by the upcoming salary hike among civil servants in December this year.
The firm however expects RCE Capital's financing receivables to only start to pick up in the second half of 2025, given that the members of the non-bank financial institution are mainly government employees.
While allowance for impairments remain elevated due to high level of resignations and early retirements, we think that the worst may be over, attributable to the two-phase civil servant salary adjustment, which should help to reduce early retirements and resignations.
"While resignations and early retirements have remained elevated, we believe that the salary hike will help to mitigate these trends, which may result in lower credit cost going forward," the firm noted.
PublicInvest said it expects RCE Capital to issue another round of sukuk amounting to RM150 million in December 2024, where the proceeds will be used to refinance short- term loans (revolving credit), potentially leading to an improvement in profit margins.
RCE Capital's first quarter financial year 2025 net profit decreased by 17 pe rcent year-on-year to RM30.3 million, due to lower fee income and higher allowance for impairment loss.
In addition, non-performing financing (NPF) continued its uptrend, as RCE Capital saw its NPF ratio rise to 4.2 per cent (1QFY24: 3.7 per cent), mainly dragged by early retirements and resignations within the civil service.
PublicInvest kept its 'Neutral' call on the company with a target price of RM 1.60 for the stock. RCE Capital was trading one sen lower at RM1.52 share earlier.