In 2018, the overall global economy growth has been moderate, due to multiple challenges faced such as the trade tensions among major economies, fluctuations in commodity prices and volatility in global financial markets. These have weighed on investor sentiment and contributed to the deterioration in global equity prices. Against this challenging backdrop, the growth in emerging market and developing countries has softened due mainly to the weak recovery in commodity exporters and the deceleration in commodity importers.
Back home, the Malaysian economy recorded a respectable Gross Domestic Product (“GDP”) growth of 4.7% in 2018 (2017: 5.9%), exhibiting the resilience of our economy which is facing multiple external headwinds. The growth was underpinned by strong domestic demand as favourable wage and employment growth continued to drive household spending which resulted in increased private consumption from 7.1% a year ago to 8.1%.
In addition, the historic change of government in Malaysia after the 14th General Election saw a smooth political transition. Although public expenditure and private investment growths were initially affected by the uncertainties over the new government’s transitory policies, the overall market responded positively and quickly adapted to these policy changes.
Despite the challenging market condition during the year, the Group reported higher revenue of RM262.6 million, representing a 6.8% increase from the previous financial year. The primary contributor was the increase in interest income in the consumer financing segment, supported by an expanded loan portfolio to RM1.7 billion with 5.2% growth from a year ago.
The Group strived to ensure cost efficiency and achieved a cost to income ratio at 22.2%. This resulted in a profit after tax of RM95.5 million, registering a 7.7% growth compared to FYE 2018, with higher earnings per share of 28.02 sen and a respectable return on average equity of 17.3%.
Following the full issuance of the previous RM900.0 million Sukuk Murabahah Asset-Backed Securitisation Programme (“Sukuk Programme”) via Al Dzahab Assets Berhad, the Group has established a new Sukuk Programme of RM2.0 billion via a special purpose bankruptcy remote vehicle, namely Zamarad Assets Berhad. The first tranche amounting to RM265.0 million was successfully issued on 27 March 2019 with a remaining balance of RM1.7 billion available for future issuance. This is the Group’s fifth foray into the debt market.
The Group upholds high standards of disclosure and continue to adopt good corporate governance practices across all business units.
We are dedicated to communicating with shareholders, investors and analysts in order to keep our stakeholders informed about the Group’s aspirations, latest operational and financial developments in a timely manner. Various communication channels are used by our Investor Relations Team (“IR Team”) to engage with stakeholders, such as quarterly briefings with analysts and fund managers and occasional roadshows with institutional/prospective investors.
Specifically, our IR Team participated in the 15th edition of Invest Malaysia 2019 organised by Bursa Malaysia Berhad and Malayan Banking Berhad held on 19 and 20 March 2019. In the two-day capital market forum, our IR Team conducted 6 small group meetings with over 40 diverse institutional investors.
Maybank Investment Bank Research and KAF-Seagroatt & Campbell Securities Sdn Bhd are the two research houses that provide coverage on the Group’s financial performance since September 2016 and January 2018 respectively.
In addition, our IR Team continues to ensure the latest announcements on business activities, financial results and corporate developments are accessible on the Group’s website (https://www.rce.com.my).
The sustainability of the Group’s business practices is paramount. This year, the Group has completed our Sustainability Statement to report on the material sustainability issues of the Group and stakeholders, and also complying with Bursa Malaysia Securities Berhad Main Market Listing Requirements relating to Sustainability Reporting. The Sustainability Statement can be found on pages 19 to 31 of this Annual Report.
The Group also embarked on the Board Effectiveness Assessment (“BEA”) exercise with an independent external consultant to assess the overall effectiveness of the Board in view of the importance of the Board governance. The BEA’s framework focuses on how the Board discharges its key roles and enablers that support the Board in fulfilling its responsibilities.
We continuously strive to balance the Group’s funds for our business requirements, financial obligations as well as committing to the consistent returns for investors as we are guided by declaring dividends between the range of 20.0% to 40.0% of profit from FYE 2019 onwards.
On 13 December 2018, the Group paid an interim single-tier dividend of 4.0 sen per share, amounting to RM13.6 million. On top of this, the Board has now proposed a final single-tier dividend of 5.0 sen per share for FYE 2019 with an estimated payout of RM17.1 million, subject to approval by shareholders at the 65th Annual General Meeting. This brings the total dividend for FYE 2019 to 9.0 sen per share, amounting to approximately RM30.7 million, which translates to a total payout ratio of 32.1% and within our dividend guidance.
The global economy is projected to continue growing in a moderate pace in 2019 following the impact of the build-up headwinds in 2018. These include the unclear direction for the prolonged negotiations on the trade war between the US and China, a slower than expected economic growth in China and the unresolved Brexit. These external factors will continue to weigh on investor sentiments and will impact Malaysia’s trading and investing landscapes.
Bank Negara Malaysia estimated Malaysia GDP to grow by 4.3% to 4.8% in 2019, underpinned by strong private sector activity and recovery in commodity sectors. However, the loans growth in Malaysia is expected to be modest amid a tough investment environment and margin compression.
Nevertheless, the Group remains focused as a niche market player and will proactively deliver sustainable returns to our shareholders. Bringing in quality loans continues to be our main priority as we periodically assess our products and credit scoring model in order to remain competitive and relevant in this competitive market environment.
In the age of increasing digitalisation, the Group continues to promote process simplification and technology enhancements to simplify the way we operate and to remain resilient. Hence, the Group welcomes responsible innovation and continues to explore the digital space to add value to our businesses.
On behalf of the Board, I wish to take this opportunity to express our deepest gratitude to all of our stakeholders, including shareholders and customers for your unwavering trust during this challenging time. I would also like to extend my greatest appreciation to the management team for their tireless contribution as well as our employees for their continued commitment in achieving good results.
Last but not least, I also thank the regulatory authorities for their guidance and support and my fellow Board members for their trust and wisdom.