RCECAP's Director Actively Buying Company's Share

Chew Keng Yong, a RCE Capital Berhad (RCECAP) director , had been investing at least RM1.8 million (based on daily minimum market price) buying back shares lately, with records for the last 3 months as follow:

When a director is prepared to put RM1.8 million into shares of the company he manages, we can be pretty sure that something good is ahead for the company. Else, no one will be willing to bet on something that's going worse.

RCECAP is an attractive financial sector stocks, with current trade at RM0.51 and P/E at 4.92. It's business is in the form of personal loan to government servants and repayments of the loan are done through salary deduction scheme. This is a very good business, as government servants' job are very stable, and their repayments are definitely on-time.

RCECAP's share price, Dec 2010 - Feb 2011

This stock took a dive from RM0.63 at the end of November 2010 with the company's following announcement:

The Company wishes to inform that Koperasi Wawasan Pekerja-Pekerja Berhad (KOWAJA) has on 26 November 2010 advised that they will not be making any further loan disbursements from 1 December 2010 onwards. KOWAJA is currently the largest borrower of RCE Marketing Sdn Bhd (RCEM), a wholly-owned subsidiary of RCEM, and provides personal loans to its members (who are primarily in the civil service) via an on-lending arrangement in relation to the funds borrowed from RCEM. 

Following enquiries made by RCEM, KOWAJA has informed that they have been requested to submit a plan to Suruhanjaya Koperasi Malaysia (SKM) for complete endorsement of KOWAJAs compliance with SKMs applicable guidelines. Until such endorsement, KOWAJA will temporarily cease disbursement of loans from 1 December 2010 onwards. 

At the same time, KOWAJA has given its assurance that all loans disbursed up to 30 November 2010 will continue to be serviced via the regular collection mechanism. RCEM has also not observed any disruptions in the same. Meanwhile, KOWAJA is working closely with SKM towards an expedient resolution of the temporary disruption in their operations. 

As such, the Company does not expect the above to have any material financial impact to the group in relation to the current financial year ending 31 March 2011 and on its ability to meet interest and principal payments in respect of its existing debt obligations. 

However, if KOWAJAs loan disbursements are curtailed in a prolonged manner, there may be some impact on the groups future profitability in the longer-term. We will keep the market informed as and when there are further material developments on the above.

In summary, KOWAJA is RCECAP's biggest borrower. Temporary, it had stopped borrowing money from 1 Dec 2010 onwards as it has to submit a plan to comply with SKM's applicable guidelines. KOWAJA is working closely with SKM towards an expedient resolution of the temporary disruption in their operations.

I have a hint that the crisis is going to end soon.