RCECap- hit by impairment provision

Result Update

for QE31/3/2013, RCECap reported a net loss of RM28.5 million as compared to a net profit of RM9.4 million for QE31/12/2012 or RM16.5 million for QE31/3/2012. The net loss arose mainly due to the increase in loan impairment of RM38.6 million arising from the "refinement and enhancement in the classification of NPLs in its personal loan financing segment", in compliance with the requirements of individual assessment under MFRS 139, Financial Instruments: Recognition and Measurement (“MFRS 139”).

While the loan impairment is a one-off item, there is no denying that RCECap's top-line and bottom-line is in a steady & probably irreversible downtrend. What would it take to arrest this development?


Table: RCECap's last 8 quarterly results


Chart 1: RCECap's last 24 quarterly results

Valuation

RCECap (closed at RM0.28 at the end of the morning) is now trading at a PE of 70 times (based on last 4 quarters' EPS of 0.4 sen). However, if the one-off impairment provision of RM38.6 million is is excluded, the full-year EPS would bound back to 14.7 sen; thus giving a decent PE of 1.9 times. At the price of RM0.28, RCECap is also trading at a Price to Book of 0.5 time and has a dividend yield of 5.4%. 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 with resistance at RM0.30. Its immediate support is the line, AB wt RM0.24-0.25.


Chart 2: RCECap's weekly chart as at May 28, 2013_12.30pm (Source: Quickcharts)

Conclusion

Despite a net loss in the latest quarter, RCECap is a stock worth tracking. It is trading at very undemanding multiples and pays a decent dividend yield of 5.4%. It is owned by Azman Hashim, the founder of AMMB, a man with strong background in the world of finance. If your investment horizon is measured in years (like Azman), this stock may fit the bill. As such, I rate this stock 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.