The enhanced dividend payout ratio (DPR) policy of 60-80% starting from FY24 has received positive investor response. Consequently, DPS estimates have been raised by 2 sen per annum, assuming a 65% DPR compared to the previous 54%.
At the current share price, RCE Capital offers dividend yields of over 6.3% per annum, presenting a generous 60% premium compared to the 10-year Malaysian Government Securities yield of 3.9%.
While earnings were within our expectations, RCE Capital Bhd pleasantly surprised investors by raising its Dividend Payout Ratio (DPR) policy from 20-40% to 60-80%. This positive development has led Maybank to upgrade the company to a Buy rating with a higher target price (TP) of MYR2.07 (+18%).
Raising Dividends Per Share Estimates
Maybank states, “We raise Dividends per share (DPS) estimates by 2sen p.a. to reflect a higher DPR of 65% (54% previously). Seeing that we raised our DPS estimate by 20%, we think it reasonable to also raise our end-CY23E target P/BV by a similar 20% to 1.8x from 1.5x and lift our TP to MYR2.07 from MYR1.75. Coupled with dividend yields of ≥6.3% p.a., we upgrade RCE to BUY from HOLD.”
In terms of financial performance, RCE Capital achieved a net profit of MYR34.8 million in the fourth quarter of FY23, representing a 10% year-on-year increase but a 1% quarter-on-quarter decrease. This contributed to a FY23 net profit of MYR138.8 million, a 4% year-on-year growth, meeting expectations at 101% of the FY estimate. Additionally, the FY23 revenue of MYR323.6 million, an 8% year-on-year rise, aligned with expectations at 98% of the FY estimate.
Final Dividend Per Share
The final dividend per share (DPS) of 7 sen resulted in a FY23 DPS of 30 sen, inclusive of an 18 sen special DPS, surpassing expectations by 2 sen. The recurring DPS for FY23 was 12 sen, translating to a 63% dividend payout ratio (DPR), which exceeded the anticipated level by 9 percentage points.
Stability at RCE Capital
Looking ahead, RCE Capital demonstrates stability, with financing growth and gross non-performing financing (NPF) ratio in line with expectations.
The financing and loans loss coverage ratio improved to 157.8% in the fourth quarter. Despite an increase in the cost of funds, RCE successfully passed it on to new customers through higher profit rates.
As a result, earnings are projected to remain stable, with minimal changes in the FY24E/FY25E earnings forecasts (-1%/+0%) and the introduction of FY26E earnings predicting a 4% year-on-year growth.
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