RCE Capital - BUY - 27 May 2008

RCE Capital - FY08 results right on the money (Results Note)



Price: RM0.62

Target Price: RM1.20

Recommendation: BUY



· RCE Capital's (RCE) FY08 core net profit of RM54.0m was in line with our forecast of RM51.9m and consensus estimate of RM53.6m. The slight 4% discrepancy between actual FY08 net profit excl. EI and our estimate was due to an impairment loss of RM3.4m from RCE's participation in a Collaterised Loan Obligation (CLO) programme.

· The loan financing business was the main driver of the 16% YoY increase in FY08 core net profit, with net loan receivables growth of 34% spurred by civil servants' salary hike in July 2007. Revenue from the factoring division also increased by more than 3x, which offset the decline in investment holding income (due to the disposal of 23.2m units of AmFIRST REIT in FY07).

· FY08 EBIT margin declined due to higher marketing expenses incurred on incentive programmes for the co-operative agents that distribute RCE's products. RCE rewarded agents with incentive trips for example, to motivate performance and counter stiff competition from Bank Rakyat and other commercial banks that have entered the civil servants' consumer financing market.

· 4QFY08 net profit excluding EI of RM16.1m grew by 1% YoY and 7% QoQ due to higher net loan disbursements by the loan financing and factoring segments.

· Final gross dividend per share of 1.0 sen announced translates into a FY08 dividend yield of 1.6%, on par with that of FY07.

· Tweaking FY09 and FY10 net profit estimates upwards to take into account lower corporate tax rate of 26% and 25%, resulting in FY09 and FY10 EPS increasing by 3% for both years. Anticipate FY09 net profit growth of 20% with sustained demand for loans boosted by the extension of government employees' retirement age to 58 years.

· Maintain BUY recommendation with revised target price of RM1.20 derived from previous 13x PER (regional industry average) applied to FY09 EPS of 9.1 sen. Continue to favour RCE for its niche civil servant customer base, low default risk with direct salary deduction and potential growth from factoring.





KENANGA INVESTMENT BANK BERHAD (15678-H)

HLG: 9 April 2008 Alam Maritim - RM100m extension for Jaguh, Padu

Alam Maritim Resources BUY



Price target RM2.70



Share price at 08 Apr RM2.02


Investment summary


Yesterday, Alam secured a RM100m contract to extend the charter for Setia Jaguh (8920 bhp) and Setia Padu (5150 bhp). The implied daily charter rate (DCR) at USD2.00/bhp is 50-70% higher than the previous contract, and 10% higher than spot USD1.80/bhp rates 6 months ago. We maintain our BUY call on Alam: (1) 18% share price decline YTD is unwarranted given that charter rates have shown no sign of weakness (2) valuation at 14x FY08 PE is comparable with KLCI, but with 28% earnings growth pa over FY08-10E driven by higher charter rates and new vessel delivery. We remain positive on O&G vessel owner/operators sector: (1) charter rates continue to remain strong with new-builds lagging behind replacement market (2) the number of Malaysian flagged vessel remains below Petronas requirement.



Charter rates inching up

Charter rates have risen 10% in the last 6 mths, while vessel owner/operator share prices fell 20-40% YTD. We think the second round of Petronas charter awards in Q308 could renew investment interest in the sector.

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)

RCE Capital - 9MFY08 results on track

RCE Capital - 9MFY08 results on track (Results Note)
Price: RM0.58
Target Price: RM1.15
Recommendation: BUY



· RCE Capital's (RCE) 9MFY08 net profit of RM38.0m was within our expectations and slightly below consensus, comprising 73% of our RM51.9m FY08 net profit forecast and 70% of the RM53.6m estimated by consensus. 9MFY08 core earnings is up by 24% YoY spurred on by the July 2007 civil servants' pay rise.

· 9MFY08 core net profit bumped up by higher loan disbursements driven by the hike in government employees' salaries. YoY, 9MFY08 core net profit rose by 24% (compared to 9MFY07 core net profit of RM30.5m excluding 9MFY07 extraordinary items of RM20.4m from the disposal of AmFIRST REIT and the associated RM3.5m impairment) due to an approximate 20% increase in loans disbursed. 9MFY08 EBIT margin declined by a slight 4% due to higher interest expense associated with the fully-issued MTNs and higher commissions for co-operative agents.

· YoY, 3QFY08 core net profit increased by 16% on the back of 33% increase in 3QFY08 revenue spurred by the public service salary increase and aggressive marketing by RCE. Excluding exceptionals, the 3QFY08 EBIT declined by 10% partly due to higher interest applicable to revenue which grew proportionately to the larger amount of loans disbursed.

· QoQ, 3QFY08 net profit improved by 16% despite a 4% dip in 3QFY08 revenue due to the timing of loan demand. 2QFY08 revenue enjoyed the bulk of the increase in loan appetite coupled with aggressive marketing by RCE, surging by 24% QoQ.

· Maintain FY08 and FY09 net profit estimates of RM51.9m and RM63.1m respectively. Expect healthy demand for loans in FY08 by the low to middle income civil servants that are RCE's target market, as they look to raise cash to cope with rising inflation.

· Re-iterate our BUY recommendation with target price of RM1.15, obtained by utilising a 12x PER to previous FY09 EPS of 9.6 sen. At our target price, the stock would only be trading at 13x PER to FY09 EPS (excl EI) of 8.9 sen. We believe the company's growth prospects are intact, with the possibility of upside as it expands geographically.


KENANGA INVESTMENT BANK BERHAD (15678-H)
Research Department