KENANGA : RCE - BUY - 4 Apr 2008

RCE Capital – Private placement completed (Company Update)



Price: RM0.51

Target Price: RM1.15

Recommendation: BUY



· Private placement of 64.6m new RCE Capital (RCE) shares or 10% of current share capital were placed out at RM0.455 per share (at a 10% discount to 5-day weighted average price prior to 25th March 2008 of RM0.505). The RM29.4m proceeds from the placement have been earmarked for the expansion of the factoring business and the Vietnamese finance company JV. We understand that the placee was already a minority shareholder in RCE.

· RCE Factoring’s complementary business to become significant contributor in near future. The factoring business that caters primarily to SMEs in trading, construction and manufacturing services, currently only accounts for 2% of 9MFY08 revenue. RCE Factoring’s total loan disbursements in FY08 were approximately RM45m and the firm targets RM100m loan book in 3 year’s time.

· 30% stake in Vietnamese finance company still on the cards with definitive JV agreement expected to be signed in 1HFY09. We understand that the firm is in the midst of finalising the details of the agreement with Southern Bank Vietnam.

· No changes to forecast as we have already factored in the enlarged share base into our earnings estimates.

· Earnings Estimates

FYE: 31 Mar (RMm)
2006
2007
2008E
2009E
2010E

Revenue
57.5
98.7
128.4
152.7
170.2

EBIT
25.0
76.7
78.6
93.4
110.4

Pretax profit
23.5
73.8
72.0
87.8
103.7

Net profit
19.8
63.4
51.9
63.1
74.6

Net profit excl. EI
19.8
46.5
51.9
63.1
74.6

Net profit growth
32.9%
134.8%
11.6%
21.8%
18.2%

EPS (sen)
2.8
8.9
7.3
8.9
10.5

EPS excl. EI
2.8
6.5
7.3
8.9
10.5

Growth in EPS excl. EI (%)
32.9%
134.8%
11.6%
21.8%
18.2%

GDPS (sen)
-
1.0
1.0
1.0
1.0

NTA/ share (RM)
0.09
0.19
0.31
0.33
0.43

Net gearing (x)
2.5
2.0
1.3
1.6
1.3








PER (x)
18.3
7.8
7.0
5.7
4.9

Gross Div. Yield (%)
-
2.0%
2.0%
2.0%
2.0%

P/ NTA (x)
5.6
2.7
1.6
1.5
1.2

EV/ EBITDA (x)
23.5
8.8
8.9
8.5
7.2

ROE (%)
26.2%
36.5%
25.1%
24.5%
25.1%







Target price of RM1.15, based on 13x FY09 PER of 8.9 sen. The stock is currently trading at undemanding FY08 and FY09 PERs of 7.0x and 5.7x respectively in comparison to industry average PERs in FY08 and FY09 of 13.7x and 12.2x. We continue to like the firm for its low-risk direct salary deduction model and expect demand for the company’s loan products to remain resilient in line with Malaysia’s domestic consumption. BUY.





KENANGA INVESTMENT BANK BERHAD (15678-H)