Waw, the CIMB analysis all in one paragraph .

Another long story.

Thanks anyway.

This post has been edited by SKY 1809: Apr 3 2010, 12:06 PM

Sorry SKY TAI KOR I repaste again

January 28, 2010, Thursday

KUCHING: RCE Capital Bhd’s (RCE Capital) strong business model which focuses on the provision of financing to civil servants at attractive interest rates of 10 to 12 per cent will continue to enhance its earnings.CIMB Investment Bank Bhd (CIMB) in a research report yesterday cited that earnings prospects for RCE Capital remains bright.

It observed that consensus was projecting solid net profit growth of 12 per cent to 18 per cent per year over the next three years, supported by 18 per cent to 29 per cent expansion of the loan base. The research firm also noted that default rates were low at about 3 per cent.

Meanwhile, CIMB stated that RCE Capital was a small financial services company with RM1.28 billion in total assets and a loan base of RM952 million.

It said most of its income was generated from the lending business, with interest income comprising 77.1 per cent of its total revenue and commission income made up 18.8 per cent of revenue.

It pointed out that RCE Capital’s business focused on consumer financing, which accounted for 96 per cent of its loan base as compared with 2.5 per cent from the factoring operations.

CIMB observed that more than 90 per cent of RCE Capital’s loan book came from personal loans to public sector employees through Angkatan Koperasi Kebangsaan Malaysia (Angkasa), a centralised collection agency for cooperatives in Malaysia.

It added that with the assistance of Angkasa, monthly repayments were made through the deduction of borrowers’ salaries.

The research firm noted that this arrangement gave RCE Capital the upper hand of the repayments of borrowing, thus minimising default risks. At the same time, CIMB noted that RCE Capital’s market share of civil servant loans was merely 2.8 per cent.

It said the biggest player is Bank Kerjasama Rakyat Malaysia Bhd (Bank Rakyat) with 50 per cent followed by Bank Simpanan Nasional at 12 per cent and Bank Pertanian Malaysia 5 per cent
On the flipside, CIMB highlighted that as RCE Capital did not have a deposit-taking licence, its operations was primarily financed by debts. It pointed out that the group had total borrowings of RM920.7 million as compared with a loan book of RM924.1 million.

It said the financing came mainly from its RM1.5 billion asset-backed programme and RM420 million medium-term notes.

Nevertheless, RCE Capital’s other investment was its 7.9 per cent stake in AmFirst Real Estate Investment Trust (REIT) apart from its financing business.

To recap, AmFirst REIT is a property investment company with a portfolio that includes Bangunan AmBank with a value of RM226 million, Menara AmBank (RM292 million); The Summit (RM284 million); Kelana Brem (RM105 million) and Menara Merais (RM64 million).

CIMB said these properties had high occupancy rates averaging 89 per cent whilst AmFirst REIT recorded a 60.9 per cent increase in revenue to RM93.1 million in financial year 2009.

CIMB also observed that RCE Capital experienced explosive loan growth in 2005 to 2009 with a compound annual growth rate (CAGR) of 69.7 per cent as its focus on the lending to civil servants started to produce results.

It believed that the development helped RCE Capital to expand its revenue by a CAGR of 31.6 per cent in the same period. However, due to the increase in overheads needed to sustain the swift business expansion, RCE Capital’s net profit registered a slower CAGR of 24.9 per cent in 2005 to 2009.

Positively, CIMB estimated that RCE Capital’s bottomline growth remained strong at 31.5 per cent in financial year 2009, supported by a 63.3 per cent expansion of revenue.

The research firm projected net earnings growth of 12 per cent to 18 per cent per year for financial year 2010 to 2012 on a 10 per cent to 16 per cent annual rise in revenue.

It said the key earnings drivers were expected to be healthy expansion of the loan base and attractive lending yields.

CIMB believed that yields on earnings assets will be sustained at the financial year 2008 to 2009 levels of 12 per cent to 16 per cent. Going forward, it noted that RCE Capital’s growth is expected to come from consumer lending, especially personal loans to public sector employees.

It highlighted that RCE Capital will continue to pursue organic growth, increase market reach and seek other growth engines such as exploring opportunistic acquisitions and investments.

On the downside, it noted that RCE Capital will face competition from commercial banks for its business, higher cost of funds as compared with commercial banks due to its business model as a non-deposit taking company, concentration risk and less sophisticated risk management system.

This post has been edited by darkknight81: Apr 3 2010, 12:20 PM

Sky, i am a bit concern on this sentence. What if these banks go and reduce their lending rates and hence squeeze RCECAPITAL margin as RCE CAPITAL does not have deposit-taking license? RCECAP will have a losing end.

Thats y i am suspecting something is going on as AMBANK DIRECTOR HASHIM might wanted to park RCECAPITAL under AMBANK group.

This post has been edited by darkknight81: Apr 3 2010, 12:23 PM

RCEcap mostly gives term loans that int rates are fixed.

Lower banking rates mean cost of funds cheaper for them.

Good and bad. Since interest is on the rise.

Buy generally the profit margin is very high as compared to a bank loan.

We call it a safety net.

This post has been edited by SKY 1809: Apr 3 2010, 12:29 PM

I believe BANK RAKYAT, BANK SIMPANAN and RCECAP are providing term loans to those government servants through ANGKASA. I believe BANK RAKYAT , BANK SIMPANAN have lower financing cost via deposit taking.

What if BANK SIMPANAN reduce their term loan rates to fence off the competition from RCECAP? RCECAP cannot fight with them as RCECAP financing cost is much more higher then them becos RCECAP doesn't have deposit taking license.

This post has been edited by darkknight81: Apr 3 2010, 12:42 PM

If you think so.

Banks should not go under or taken over simply bocs the funds came free from the Government. Who else could compete with these banks ? and yet they are not here today.

Bank Bumiputra and few others.

And Bank Rakyat do lend to people with serious CRRIS and CTOS problems ( I heard in the market ).

And since you mention Bank Simpanan, there was one very busy Monday that I had to go to three banks. I was very happy to go inside Bank Simpanan bcos I was the only customer in the premises during lunch break.

I hope you are not coming back to say they employ cheaper staff and operate with cheaper rentals.

And total cost of funds = cost of fund in the market + overheads ( always hidden )+ cost of bad debts

Look at AIG, they dared to take all kind of risks in the past. And they were once , one of the most profitable listed company in the world

And just through one big crisis, they fall.

Just my view.

P/S : I do not mind if you come back with facts and figures of Bank Rakyat or Bank Simpanan to prove me wrong.

This post has been edited by SKY 1809: Apr 4 2010, 11:46 PM

As I know RCECAP provides personal loan to civil servants through 3 coorperatives namely

i) Koperasi Sejati Bhd (KSB)

ii) Koperasi Wawasan Pekerja-Pekerja Bhd (KOWAJA)

iii) Koperasi Belia Nasional Bhd (KOBENA)

out from 450 coorperatives. Which means they can only service their existing segment which is under these 3 coorperatives. Correct me if wrong.

http://www.theedgemalaysia.com/business-ne...ffer-value.html

This post has been edited by darkknight81: Apr 5 2010, 11:16 AM

http://announcements.bursamalaysia.com/EDM....03.2010%29.pdf

Goreng RCECAP!!! Institutional investors are buying in...

This post has been edited by Prince_Hamsap: Apr 9 2010, 10:35 AM

COngraz !!

From the sos i gather, might be expired or not halal.

Overview:
1. this company is licensed under the Moneylending Act 1951.
2. the company is under the purview of Ministry of Housing and Local Government.

The Moneylending Act initially enacted with good intentions to protect citizens from unscrupulous Money Lenders, for instance imposing ridiculous terms and conditions loans borrowed from this entities.

The Moneylending Act is the bible from A to Z to all Moneylenders.

It is also known (at least to Money Lenders) as one of the most poorly drafted legislation, least understood (there is only a handful of law firms specializing/dealing in the Moneylending Act), draconian and also obsolete legislation which continues to be embroiled with disputes.

Since the inception of the Moneyleding Act, it has evolved into other businesses such as raising funds for IPO. Although there is no specific mention in the Act that such businesses can be done, exemption is given by the respective Ministry. In areas of taking collateral, there is also no mention of shares being used by the Money lender as collateral but numerous money lenders are doing it.

Why Moneylending Act and not BAFIA?
Reason being the regulatory and capital requirements are extremely different.

Why borrow from a license Moneylender instead of a commercial bank?
For reasons unbeknown to me at least, moneylenders seems to take in all sorts of customers regardless of their credit.

So what interest do they charge?
The interest charged by Money lenders are fixed by law.

s.17A Moneylending Act

Secured = 12%p.a
Unsecured = 18% p.a

So what about the loan documentation?
The law also sets down one type of agreement to be signed between the moneylender and the borrower.

Perhaps two of the most infamous Agreements are:
Schedule J (unsecured)
Schedule K (secured)

How does RCE benefit from arrangements from the so called "Kooperasi."
1. Interest Rates are fixed above the normal lending rates by banks (unless exemption obtained for a lower interest rate, which i am not aware of).
2. default, very unlikely. Especially when dues are directly deducted from your salary!
3. low cost leading to higher profit margins. every month only collect interest+installment payment, how easy life is!
4. increase in lending rate by normal commercial banks will drive more ppl to seek out Moneylenders as alternative.
5. ability to borrow from commercial banks and profit from it!

Con.
1. it takes only one Moneylender to be haul to court leading to a landmark decision which will cause the collapse of this industry.
2. changes/amendments to the Moneylending act
3. dissolution of the arrangement
4. higher default rate(unlikely, unless gomen forgot to pay salary)
5. finally the cream of it all... RCE losing its license.

This post has been edited by aurora97: Apr 10 2010, 08:56 AM

Good Summary.

i agreed with you on the con. However, since RCECAP is own by Datuk Hashim which is one of the influential guy in Malaysia like Syed Mokhtar. So i can say the risk on losing its license is highly unlikely.

darkknight, good to see you going full steam on RCECAP. Good luck in your ride.

Hehe thanks. But I just hold 20,000 shares of RCECAP which is quite small compare with my YTLPOWER lar . Plan to average down RCECAP just in case the share price dip further.

Possible that any business tied to a 'personality' has repercussion when anything happens to him (e.g. Steve Jobs, Tony F). So make sure he has a succession plan or check out on how healthy he is.

This post has been edited by whizzer: Apr 10 2010, 12:26 PM

Its true. i have learn one lesson, sometimes we cannot look too far it will makes thing become too complicated. As long as short term (5 years time frame) still looks good then i will enter already.

Always remember there is no counter which is perfect.

Share with you one counter which i have targeted last time TCHONG but i didn't bought any cos considering too many issues. I watching it climb from RM 1.50 UNTIL RM 4.50

So in the end. it is more on how we manage risk.

This post has been edited by darkknight81: Apr 10 2010, 12:59 PM

Actually, there's one personality whom I believe whose demise would not impact his stock price.
The person I am refering to famously said he will only retire 25 years after he is dead (or something to that effect) i.e. warren B.

Back to RCECAP, I had been holding this stock since Aug 2009 (which I bought at 0.645). Also bought on the premise that its giving loan to govt servant. There's one little note that I made during that time that RCECAP govt loan business is only one-third (?) of its business . However, I think I might have been half a sleep at that time.


Since, you have been doing research on this, can you help to check on percentage contributing from govt servant loan business.

(Reuters) - An initial public offer by India's SKS Microfinance is likely to set the stage for more such offers in the world's largest microlending market, but it has also sparked a debate on the ethics of profiting from the poor.

This should bring make RCECAP interesting!

In this world or at least in reality, i believe 90% (optimistic figure) of those people who give would expect something in return, one way or the other. The rest of the 10% i leave it to your creativity.

For RCECAP, shareholders/investors actually plough money into a company and expect return from their investment. Which begs the question who would want to invest in a money losing business.

---

the question lingers, if RCECAP was such a good business what is its potential for growth in the short, medium and long run especially with a business lending exclusively (or a majority) to Civil Servants.

the formula looks like sure win, but can it grow