RCECAP ... Mar11

The outcome of the temporary disruption in loan-disbursement activities experienced

by RCE Capital Bhd's major business partner, Koperasi Wawasan Pekerja-Pekerja Bhd (Kowaja), is still the main concern for RCE's future profitability.

As announced by RCE in November 2010, the temporary disruption in loan disbursement by Kowaja was not expected to have any material financial impact for the current financial year ending March 31, 2011 (FY11) and on its ability to meet interest and principal payments in respect of its existing debt obligations.

However, RCE said there might be some impact on the group's future profitability in the longer term if Kowaja's loan disbursements were curtailed in a prolonged manner.

RCE is involved in the provision of personal loans and consumer-financing services to public and private sector employees, factoring and investment in a real-estate trust.

RCE's management and Kowaja had the urgency to work closely with Cooperative Commission of Malaysia's (CCM) towards a resolution for a full compliance of GP6 and GP7. Otherwise, the company could see negative impacts to its future profitability.

The cessation of Kowaja lending activities to civil servants for failure to comply with the CCM guidelines was effective Dec 1 2010. Under the guidelines, which were named GP6 and GP7, the commission sought to bring more prudent practices in how cooperative members, mainly government employees, were borrowing money.

Earnings delivery, the larger picture remained cloudy as there was no development yet on Kowaja's compliance with cooperatives guidelines which could affect RCE's earnings growth post-FY11.

RCE provides personal loans to Kowaja's members via an on-lending arrangement on funds lent to Kowaja.

There has been no new development on the Kowaja issue since RCE's announcement dated Nov 26, 2010. The longer the issue dragged on, the more significant the impact would likely be on RCE's loan book as well as earnings.

On RCE's results for the third quarter ended Dec 31, 2010, the company registered a net profit of RM32.8mil, 57% higher than RM20.9mil previously. Revenue was up 22.2% to RM77.2mil.

For the nine months, it posted a net profit of RM87.7mil, 50.3% higher than RM58.3mil in the previous corresponding period, on revenue of RM210.7mil.