Maybank Investment Bank Research has raised the company’s earnings projections for the financial year ending March 31, 2017 (FY17) to FY19 by 15% to 21% with a higher return-on-equity of 15% to 16% over this period.
However, the research house said due to the still benign credit environment, loans growth expectations had been trimmed to 11% to 13% from 11% to 16% previously.
It has also raised interest margin estimates while credit cost assumptions have been lowered. It expects credit costs to rise from about 2% in FY17 to 2.3% in FY19.
The company’s latest third quarter for FY17 saw robust net loans growth of about 14% year-on-year (y-o-y) and net interest margins expansion, mitigated in part by higher credit costs.
“RCE’s third-quarter core net profit of RM16.5mil (+27% y-o-y, minus 10% quarter-on-quarter) took nine months cumulative core net profit to RM52.4mil (+61% y-o-y).
“This was above expectations at 98% of our previous full-year forecast with the outperformance coming from better-than-expected interest margins,” it said.
It has raised the stock’s target price to RM1.95 per share from RM1.60, pegging it on a higher price-to-book value of 1.5 times from 1.3 times previously, noting that valuations continue to remain attractive and RCE continues to be rated a “buy”.
On a quarter-on-quarter (q-o-q) basis, profits dropped due to higher credit costs, mitigated in part by higher net interest margins.
“Net loans growth was moderately slower at 14.3% y-o-y (from 16.7% y-o-y in the second quarter).
“While reported third-quarter net profit was a higher RM21.8mil (+67% y-o-y, +18% q-o-q) on a much lower effective tax rate of just 8%, the product of tax over-provision writebacks during the quarter,” it said.
The research house now expects RCE to generate a higher return-on-equity of about 16.1% in FY18 from 14.5% previously.
“Our target price is raised to RM1.95 from RM1.60 on pegging on a higher calendar year 2017 price-to-book value of 1.5 times versus 1.3 times previously, which is still undemanding, in our view.
“This is given that at RM1.95, the stock would trade at a prospective FY18 price-to-earnings ratio of just 9.3 times,” it said.