As we entered the second year of the COVID-19 pandemic and discovery of two variants of the virus, namely Delta and the more contagious Omicron, economies around the world continue to grapple with uncertainties and disruptions.
The rollout of vaccine programmes around the world and stimulus packages by various nations have seen some economies reopening and returning to some semblance of normalcy whilst others continue to enforce strict or total lockdowns. This prolonged disruption eventually threw global supply chain into disarray. A surge in pent up demand and a shortage of supply resulted in price hikes of both raw materials and finished goods.
As the year progressed, vaccine rollouts gained momentum and infection rates dropped. Governments and central banks responded with opening of borders as well as gradual cessation of their unprecedented fiscal and monetary support. Thus, towards the second half of FYE 2022 people started traveling again and interest rates were raised in some countries to curb rising inflation as economies recover.
However, the cautious optimism that the worst was over after having endured unprecedented lockdowns in 2020 and 2021 was shattered by the Russian-Ukraine military conflict in the last quarter of FYE 2022.
On the domestic front, apart from the pandemic, we faced the wrath of mother nature in December 2021 as we experienced devastating floods which damaged roads and properties, displaced lives and disrupted businesses in various parts of the country.
In spite of all these, the country’s growth trajectory picked up. Economic activities resumed with the easing of containment measures following high vaccination rates and declining new infections. Furthermore, private sector consumption and strong exports demand continued to firm the labour market, driving economic growth.
With these positive developments, overall Malaysia’s economic performance in 2021 exhibited a recovery momentum with a growth of 3.1% in 2021 as compared to a 5.6% contraction in 2020.
Following the resumption of economic activities, easing of movement restrictions and significant progress in vaccination programmes, the Group recorded a stable performance in FYE 2022. The Group’s revenue registered at RM299.5 million with a 2.0% year-on-year growth from RM293.5 million in FYE 2021. The main contributor was the increase in early settlement and fee income. This was as a result of higher refinancing activities by customers and disbursements arising from our continuous effort in organising sales campaigns to boost the brand presence.
While Bank Negara Malaysia (“BNM”) continued to maintain Overnight Policy Rate (“OPR”) at 1.75% since 7 July 2020, the Group’s weighted average profit rate of financing liabilities reduced by 12 basis points in FYE 2022. In addition, continuous optimisation of operational costs allowed the Group to maintain its cost to income ratio at a notable level of 21.1%.
Besides, allowances for impairment charge of RM11.5 million were lower in comparison to RM15.6 million in FYE 2021. This was mainly due to the Group’s sound credit underwriting practices in establishing quality underlying assets which is central to our risk management principles. The improvement has also taken into account positive future outlook reflected in forward-looking variables based on financial reporting requirements.
The Group achieved a higher profit after tax of RM133.2 million in FYE 2022, representing an increase of 6.8%, from RM124.6 million a year ago. This increase was reflected in the current financial year’s earnings per share of 18.3 sen and a return on average equity of 16.2%.
Effective 26 November 2021, the Shariah Advisory Council of Securities Commission Malaysia classified RCE Capital Berhad (“RCE”) as a shariah-compliant security. RCE was among the four out of thirty-three securities that were shariah-compliant in the financial services sector of Bursa Malaysia Securities Berhad. This was made possible as we completed the conversion of our major business partners’ financing from conventional to shariah in May 2020. It also marked a step forward in the journey of operating in an end-to-end shariah-compliant financing ecosystem. The classification as a shariah-compliant security is a significant development as it enables RCE to contribute towards promoting a progressive and inclusive Islamic financial and securities system.
“Most Innovative Islamic Finance Deal Of The Year & Best Islamic Finance
Deal Of The Year”
by Alpha Southeast Asia 15th Annual Best Deal & Solution
Awards 2021.
In another development, on 10 December 2021, Zamarad Assets Berhad (“ZAB”), a special purpose bankruptcy remote vehicle for RM2.00 billion Sukuk Murabahah Asset-Backed Securitisation (“ABS”) Programme, received the “Most Innovative Islamic Finance Deal Of The Year & Best Islamic Finance Deal Of The Year” by Alpha Southeast Asia 15th Annual Best Deal & Solution Awards 2021 for its tranche sixth issuance. This accolade is a testament to our recognition by the industry.
ZAB’s tranche sixth issuance was also acknowledged as the first Sukuk Murabahah ABS with Revolving Option (“RO”) feature in Malaysia. This feature allows the purchase of additional receivables by utilising the excess fund from its sinking funds, thereby minimising negative carry.
In FYE 2022, ZAB issued two sukuk tranches with RO feature amounting to RM379.0 million.
We uphold our commitment to maintaining the highest standards of disclosure and corporate governance practices. The Group’s Investor Relations team (“IR team”) constantly strengthens communication with stakeholders, investors and analysts. IR team also carries out information disclosure in strict compliance with regulations through regular and timely announcements of business activities and corporate developments on the Group’s website at www.rce.com.my.
Regular engagements with relevant parties enable positive feedback to management for prudent decision making and strategy planning.
The Group’s IR team held quarterly briefings to analysts and fund managers by utilising online platforms and video conferencing tools as the pandemic continued during the financial year.
Analysts from Maybank Investment Bank Berhad, KAF Equities Sdn Bhd and RHB Investment Bank Berhad have been covering RCE’s performance since September 2016, January 2018 and January 2020 respectively.
We held our second virtual Annual General Meeting on 23 September 2021, the first being on 22 September 2020.
Sustainability is integral to the Group’s business growth. For us, it is not just about creating profits. Sustainability in business is also about continuously looking for new ways to grow through smart actions, making good for people, being a good community citizen and not making any harm to the environment. Success comes when others thrive. When others thrive, we succeed.
Our strategy is to create value for shareholders, business partners, customers and employees in a sustainable way by providing sustainable and responsible financing. To this effect, we work towards instilling greater awareness and action among employees, customers and other stakeholders.
In FYE 2022, the 17 United Nations Sustainable Development Goals was a factor in guiding value creation for the Group. Malaysia’s climate-related commitments at the United Nations-backed Climate Change Conference focused on four mandates, which include negotiation on rules governing international carbon markets, transparency of emissions reporting, common timeframe for the National Determined Contributions (“NDC”) and climate finance.
Malaysia is committing to a 45% reduction target in economy-wide carbon intensity against Gross Domestic Product (“GDP”) by 2030 for the NDC. A domestic emissions trading scheme and voluntary carbon market is also to be launched by Bursa Malaysia Berhad as announced. We continued to benchmark our sustainability performance on climate change against global standards as well as local guidelines.
We also undertook a comprehensive assessment of the Group’s business value chain to identify Environmental, Social and Governance (“ESG”) risks and opportunities. Hence, we remain in the FTSE4Good Bursa Malaysia Index constituency for the third consecutive year. On 20 December 2021, RCE was also included as a constituent of FTSE4Good Bursa Malaysia Shariah Index, following its classification as a shariah-compliant security on 26 November 2021.
For further details regarding our sustainability efforts, please refer to the Sustainability Statement that can be found in this Annual Report.
Since FYE 2019, we have had a policy of rewarding shareholders with consistent dividend payments, ranging from 20% to 40% of the Group’s profit after tax. Our financial management takes into account balancing cash flow needs and obligations to ensure consistent dividend payment.
On 6 December 2021, the Group paid the first interim dividend of 7.0 sen per ordinary share amounting to RM25.6 million.
On top of that, RCE distributed 18,291,722 share dividend to its shareholders, on the basis of one (1) treasury share for every twenty (20) ordinary shares on 17 January 2022.
In addition, after the above share dividend, shareholders were further rewarded with 351,470,069 bonus shares, on the basis of nineteen (19) bonus shares for every twenty-one (21) ordinary shares, thereby doubling the number of shares held by shareholders with no cash outlay.
Following this, a second interim dividend of 4.0 sen was paid on 30 June 2022, amounting to RM29.3 million. Hence, the total payout of RM54.9 million equates to a ratio of 41.2%.
Global economic growth is anticipated to moderate in 2022/2023 due to inflation, debt and income inequality, in view of expected outbreaks of potential new COVID-19 variants and the current Russian-Ukraine military conflict, heightening geopolitical tensions. As such, the International Monetary Fund projects a global GDP growth of 3.6% in 2022, a drop of 2.5% from the revised projection of 6.1% in 2021. Arising from divergent recovery progress from the pandemic-induced economic impact, a widened gap in global growth rate between advanced and developing economies is evident. In light of the uncertain outlook, concerted international efforts and deliberated fiscal policies are required to realign the economic recovery.
As for Malaysia, BNM forecasted economic growth in 2022 to be between 5.3% and 6.3% (2021: 3.1%). This is based on anticipation of increasing international and domestic economic activities, improved exports and expanding vaccination rates. Moreover, increasing private sector consumption is expected to facilitate demand for domestic goods and services.
On 11 May 2022 and 6 July 2022, BNM raised the OPR by 25 basis points to 2.00% and 2.25% respectively with expectation of more rate increases to come to orderly manage a sustainable economic growth. Apart from that, BNM’s Financial Sector Blueprint 2022-2026 envisions improved financial inclusion, promotion of digitalisation and advancement of Islamic financing along the transition to a sustainable economy.
RCE continues acknowledging and leveraging the significance of digitalisation in advancing our business. In June 2021, we participated in a consortium led by Paramount Corporation Berhad to apply for one of five digital banking licences offered by BNM. In spite of the fact that our consortium’s application was unsuccessful as announced by BNM in April 2022, the Group remains open to digital banking prospects and is keeping our options open to working with any of the successful parties in the future.
Going forward, RCE’s focus will be to remain as a responsible financier in the civil servant market. We will keep to our commitment to grow quality financing in line with macroeconomic development.
Internally, we will work towards enhancing operations and procedures for improved efficiency and cost optimisation. Another initiative will be to channel resources to ensure we meet regulatory compliance requests, including shariah and ESG requirements, given RCE’s inclusion as one of the shariah-compliant securities and part of FTSE4Good Indices constituency.
I would like to extend our deepest gratitude to all shareholders, customers, business partners and other stakeholders for your continued support. I would also like to thank my fellow Board members, our management team and employees for their unwavering commitment and efforts in creating value to the Group.
On behalf of the Board, I wish to take this opportunity to express our appreciation to Mr. Tan Bun Poo who resigned as an Independent Director on 31 May 2022, for his invaluable service and contribution to the Group for the past 9 years.
My deep appreciation also goes to regulators for their guidance and support. Last but not least, the Group extends heartfelt indebtedness to all healthcare, law enforcement and essential services personnel for their untiring and selfless efforts in combating the pandemic.
Shahman Azman
Chairman