RCE Capital's asset quality under pressure, FY26 forecast trimmed
Public Investment Bank Bhd (PublicInvest) said the decline in provisions suggests early signs of moderation, but noted that RCE's non-performing financing (NPF) ratio has climbed to a record 4.8 per cent, highlighting concerns over the credit quality of new borrowers.
It said RCE booked a one-off impairment of about RM3 million to reflect lower repayments after changes to the debt service ratio (DSR) treatment, which now excludes certain allowances.
"Previously, these allowances were included in the 60 per cent DSR threshold, enabling higher financing eligibility. Their exclusion has reduced financing limits and payroll deductions, leading to only partial repayments," PublicInvest said in a note.
RCE has since provisioned for the affected portion of its portfolio.
For the first quarter of financial year 2026 (1Q26), RCE's net profit fell 14 per cent year-on-year to RM26 million, dragged by higher impairment allowances due to an uptick in self-declared bankruptcies and early retirements within the civil service.
PublicInvest said the results were below expectations, accounting for only 19 per cent of its and consensus estimates. It added that the discrepancy in its forecast was mainly due to lower-than-expected loan disbursements.
"As such, we cut our earnings forecast for financial year 2026 (FY26) to FY28 by nine to 12 per cent, as we lower our financing receivables assumption to account for RCE's cautious lending stance and increased competition, especially from digital lenders.
"We maintain our 'Neutral' rating on RCE, as we remain concerned over the group's asset quality, with the NPF ratio still elevated. Post-earnings adjustment, our dividend discount model (DDM)-derived target price is lowered to RM1.22," it said.
PublicInvest also lowered its financing receivables growth assumption to one to two per cent for FY26-FY28 from three per cent previously.
RCE saw its quarterly financing receivables eased marginally by 0.2 per cent, likely due to the high base effect in 4Q25 following salary adjustments.
"While credit demand is still resilient, management continues to adopt a cautious lending approach amid a challenging operating environment," it noted.
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