RCE Cap - from a PE & PB perspective

The general view is that the current market valuation is not really cheap and many stocks are at their fair value or over valued. There are some that appears real cheap but usually have reasons why they are so cheap. When I reviewed my own portfolio, I found this stock of mine still appears cheap. Hence, I decided to do a comparison with another stock in the same sector if there are specific reasons for its low valuation.
Though its scale and scope of services is nothing near AEON Credit ( may be that is why it's current PE is lower than 8 while AEON Credit's PE is more than 10 ??), I would like to do a quick comparison to see whether it is a better choice compared to AEON Credit.

FY 15		RCE Cap			RM'000
	Q1	Q2	Q3	Q4	Total
Revenue	30,411	32,351	33,540	34,884	131,186
Profit After Tax	6,876	5,645	3,131	11,164	26,816
Net profit margin%	22.6%	17.4%	9.3%	32.0%	20.4%
Net Impairment loss on Receivable	5,962	7,850	6,878	3,247	23,937
Loan & receivables	950,340	999,581	1,034,035	1,069,917	1,013,468
Impairment loss as % of Loan & Receivables	0.6%	0.8%	0.7%	0.3%
FY 16		RCE Cap			RM'000
	Q1	Q2	Q3	Q4	Total
Revenue	37,489	39,043	41,552	44,302	162,386
Profit After Tax	9,437	10,215	13,003	6,916	39,571
Net profit margin%	25.2%	26.2%	31.3%	15.6%	24.4%
Net Impairment loss on Receivable	7,973	6,510	7,193	9,194	30,870
Loan & receivables	1,114,984	1,160,660	1,213,120	1,260,442	1,187,302
Impairment loss as % of Loan & Receivables	0.7%	0.6%	0.6%	0.7%
FY 17		RCE Cap			RM'000	FY 18
	Q1	Q2	Q3	Q4	Total	Q1
Revenue	51,935	56,160	57,982	57,254	223,331	??
Profit After Tax	17,528	18,402	21,774	21,245	78,949	??
Net profit margin%	33.7%	32.8%	37.6%	37.1%	35.4%
Net Impairment loss on Receivable	4,432	6,777	8,927	6,996	27,132	6,000??
Loan & receivables	1,298,851	1,354,080	1,386,121	1,411,561	1,362,653
Impairment loss as % of Loan & Receivables	0.3%	0.5%	0.6%	0.5%
RCE Capital
RM'000	FY 15	FY 16	FY 17	FY  18 Q1
Revenue	131,186	162,386	223,331
Profit After Tax	26,816	39,571	78,949
Net profit margin%	20.4%	24.4%	35.4%	#DIV/0!
Net Impairment loss on Receivable	23,937	30,870	27,132	6,000??
Loan & Receivables	1,069,917	1,260,442	1,411,561
Impairment loss as % of Loan & Receivables	2.2%	2.4%	1.9%
AEON Credit
RM'000	FY 15	FY 16	FY 17	FY  18 Q1
Revenue	852,805	965,234	1,101,955	302,282
Profit After Tax	207,369	228,222	265,027	75,812
Net profit margin%	24.3%	23.6%	24.1%	25.1%
Net Impairment loss on Receivable	224,917	288,420	306,163	82,651
Loan & receivables	4,517,045	5,404,916	6,438,703	6,669,743
Impairment loss as % of Loan & Receivables	5.0%	5.3%	4.8%	1.2%

				FY 17
	Price	No of shares (mil)	Market Cap (RM' mil)	PAT (RM'mil)	EPS (sen)	PE	PB	Dividend yield %	ROE
AEON Credit	13.12	216	2,834	265	128.8	10.2	1.8	3.3%	18.1%
RCE Cap	1.68	354	595	78.9	22.3	7.5	1.3	1.8%	17.0%

AEON Credit has slightly better score in ROE (18% vs 17%) and Dividend yield (3.3% vs 1.8%) while RCE Cap looks "cheaper" from PE (7.5 vs 10) and PB (1.3 vs 1.8) perspective. RCE Cap has a lower impairment % because its personal financing side is mainly dealing with Government servant with auto deduction from salary, which I believe has resulted in lower default rate.
RCE Cap performance has improved drastically in FY 17 with the additional funding from Sukuk programme and its Loan and Receivables impairment ratio has come down from 2.6% to 2% (Aeon Credit is at around 5%). Unlike banks, from what I understand, RCE Cap is not subject to MFRS 9 that will come into effect on 1 Jan 2018, which has more stringent requirement on provision for credit losses. (Note: apologise for misrepresentation here, based on FY17 Annual Report issued on 21 July, RCE Cap is adopting MFRS 9 from FY 19 onwards).  
To me, though RCE Cap appears smaller in scope and size, but its impairment seems well controlled and with better PB & PE in comparison, I believe it should give me potentially higher return on investment. The only constraint I see in RCE Cap is its funding. The Rm900 mil Sukuk programme is utilised close to Rm520 mil and it has short term loan Rm306 mil due for settlement this year, but the good news is it will be replacing old debts with Sukuk debt at a lower interest rate, which will improve its profit margin further.
Though the dividend appears lower in FY17 (partly due to the special dividend and capital repayment carried out in FY16 for more efficient capital structure), personally I am in favour of this capital allocation at this stage as it needs to retain more cash for lending and grow further. Due to the fund constraint, I am not surprise if it will issue more debt papers and may have a cash call for expansion. I will be more than happy to subscribe more if that come (Aeon Credit has just completed a right issue exercise lately).
Overall, I still believe the consumer financing sector has room to grow (AEON Credit Q1 FY18 shows promising growth) and  similarly RCE Cap has good chance to deliver a higher profit in FY18. In the absence of any big negative news surrounding RCE Cap, I have just added more shares lately as I see it is still undervalued at 1.69 and I expect there will still be growth in its business.

Simply Inspiring - Anne Scheiber

Besides our very own "Cold Eye" in Malaysia, there are many more investors from different part of the world with inspiring stories. Recently the story of Anne Scheiber was published in various media, in case you have missed it, here is a link for more info on her and hopefully it inspires you too!

Anne Scheiber: The Secret Stock Multi-Millionaire - The Investors Way



The most important aspect of compounding is time ! Happy reading and investing!!

Ever-ready Shopping List

It is very common for most regular shoppers to write down what they would like to buy, especially during special sale. Are you doing this as well? When you write down a list of items to buy, did you put the price and quantity as well? Have you bought something during a sale which may not be on your list but merely because it appears cheap? Worst, you have bought something during a sale and realised later that it is of no use or things you hardly use.
Well, I usually don't prepare a shopping list in advance as I do not buy many items even during sale. Hence, I could remember very well what I need and at what price. In stock market, however, the scenario is slightly different, when the market appears to have a big sale, most people are rushing to the exit instead of jumping in to get the best sale.
In the last few years, I often prepare a list of 5 to 10 companies that I wish to include in my portfolio (with expected quantity & price) and I will start buying when the price is right. To me, here are the benefits of having this list:-
1) a pre-allocation sum to each stock to avoid over/under allocation on a particular stock/industry.
2) to avoid buying any company that is not on my list but appears cheap due to sharp drop. Yes, many years ago, I had bought companies that I have not thought of buying but because the price has dropped so much suddenly, I bought them based on instinct and greed that it will rebound faster. When the price fell further, I felt uneasy as I did not perform any analysis on the company and not sure what I was getting into. I have ended cutting loss in few cases.
3)  I can stay focus with what I have been waiting for and not let my emotion and fear stopping me to a great buying opportunity. Of course some may suggest just buy blue chips during big sale, yes, it may be a simple strategy - but still, there are so many of them and what price is deemed attractive? Will you buy Nestle if it drops from Rm80 to Rm60?? Or is it better to look at small cap stock like RCE Capital with very attractive metrics?


I don't know when the buying opportunity will come, but the more important question is - when it comes, am I ready to push myself to enter when most people is rushing to exit the same door? Having this shopping list helps me to stay focus on where and what to look for when there is fire sale. Of course, most important of all - the fund must be ready too!