RCECap- More provision made

Result Update

For QE30/6/2013, RCECap's bottom-line continued to be dragged down by loan impairment arising from the "refinement and enhancement in the classification of NPLs in its personal loan financing segment". It reported a net loss of RM28 million which is marginally better than a net loss of RM29 million incurred in QE31/3/2013.


Table: RCECap's last 8 quarterly results


Chart 1: RCECap's last 25 quarterly results

Other Commentary

RCECap, which was the forerunner of the 'civil-servant financier', could be the canary in the coal mine for subsequent champions such as Bank Rakyat & MBSB. If RCECap had to make provision for its lending to this sector, how much would Bank Rakyat & MBSB have to provide since their portfolios are much bigger than RCECap? Some may argue that Bank Rakyat & MBSB are mitigated because they have automatic salary deduction arrangement in the case of lending to civil servants. What about the lending to non-civil servants?

In a larger sense, this problem is a social problem where those in the lower income group are using borrowing as 'income' for consumption. We have seen this problem in America before the Financial Crisis and we are seeing the same problem in the rest of the world. This type of consumption has been criticized by economists as unhealthy and those who engage in it are criticized as being foolhardy.

I am sure there are some who are indeed foolhardy but there are also a large majority who are having great difficulty surviving on their present income. Our rising cost of living is hidden by a badly constructed CPI. The under-measured rising cost of living weakens the bargaining power of labor. In addition, the elephant in the room that all policy makers and central bankers refuse to acknowledge is rampant asset inflation and its impact on consumers. I truly pity the poor trying to buy a home today. How much of a home can you buy with an income of RM2000 a month with 4 or 5 or 6 mouths to feed? A RM200,000 home is beyond their reach and yet anything less would be a hut in a shanty town.

At the same time, we hear economists - aided and abetted by investment bankers and rating agencies - making strong arguments for the removal of subsidies and lowering taxes; all in the name of free enterprise, fiscal discipline and greater competitiveness. The Brazilians and Turks will tell you that fiscal health built on a foundation of unequal sharing would lead to social problem & unrest. Free enterprise without a heart will be doomed- just like socialism wearing a mask. I hope Malaysia will move in the direction of a fair & equitable sharing of the economic pie.

Valuation

RCECap (closed at RM0.29 yesterday) is now trading at a Price to Book of 0.54 time and has a dividend yield of 5.2%. All in all, RCECap is a cheap stock. If the wind blows at the right direction, it may begin to sail higher.

Technical Outlook

RCECap is in a downtrend line (RR) with resistance at RM0.30 and thereafter at the horizontal line at RM0.33. Its immediate support is the line, AB wt RM0.23.


Chart 2: RCECap's daily chart as at Aug 6, 2013 (Source: Quickcharts)

Conclusion

Despite a net loss in the latest quarter, RCECap is a stock worth tracking. It is trading at an undemanding Price to Book of 0.54 time and pays a decent dividend yield of 5.2%. I would reiterate my earlier rating for this stock as a HOLD.

Note:
In addition to the disclaimer in the preamble to my blog, I hereby confirm that I do not have any relevant interest in, or any interest in the acquisition or disposal of, RCECap.