RGB is expected to experience multiyear of growth ahead on the back of (i) robust growth in EDC terminals; (ii) regulatory push to drive e-payment adoption; (iii) riding on e-wallet trend; and (iv) beneficiary of China cross-border e-commerce trend. We expect core PATAMI to grow at a decent CAGR of 28.0% in FY19-21. RGB is a rare proxy to robust domestic e-payment industry and near-term catalyst is the potential transfer of listing status to main board. Initiate with BUY backed by TP of RM1.67.

Cashless payment solutions provider. Listed on Bursa’s ACE market, Revenue Group (RGB) is a cashless payment solutions provider in Malaysia offering a single platform that provides multi-channel payment solutions to different customers. Products and services that the company offer can be divided into 3 segments, namely deployment of Electronic data capture (EDC) terminals, electronic transaction processing and solutions and services related to payments infrastructure.

Robust growth in EDC terminals. RGB is expected to be benefit from Bank Negara Malaysia’s (BNM) target of achieving 25 EDC terminals per 1000 persons in 2020 (from 16 currently) which represents a 53% growth from current levels. RGB recent partnership with Public Bank to roll-out the all-in-one Android-based payment terminal signifies their first step in tapping into this huge market opportunity.

Regulatory push to drive e-payment adoption. Going forward, we expect electronic payment transactions to grow further, as BNM implemented a series of measures to encourage migration to e-payments. RGB track record showed that they were beneficiary from this secular tailwind, as transaction value processed by the company increased significantly from RM300.4m in 2015 to RM1.12bn in 2018, representing CAGR of 55.1%.

Riding on e-wallet trend. Mobile payments are expected to play a significant role going forward and hence we expect continued positive growth in e-wallet space due to intensified merchant acquisition and more aggressive marketing initiatives. RGB is a major beneficiary under this positive trend from terminal sales, increase in electronic transaction volume and growing volume of mobile payment transactions processed via its revPAY platform.

Beneficiary of China cross-border e-commerce trend. RGB has been appointed by Company A (a sizable China based company which cannot be named) to be the acquirer in Malaysia to process outbound payments via internet banking for purchases made by Malaysian consumers on the PRC online marketplace affiliated to Company A. Processed transaction value of PRC online marketplace affiliated to Company A increased to c.RM480m in 2018 (from RM68m in 2015), representing a 3 year CAGR of 55%, signifies that the e-commerce trend is growing strongly and we expect this trend to continue as e-commerce in Malaysia is still at infancy stage.

Financials. Going forward, we expect the numbers of terminal deployed and electronic transaction volume processed via revPAY will continue to grow due to greater adoption of electronic payment. As a result, we expect core PATAMI to grow at a decent CAGR of 28.0% in FY19-21.

Initiate coverage with a BUY rating on the back of a fair value of RM1.67 based on SOP valuation, implying an upside potential of 36%. We like the company as it is a rare proxy to the robust domestic e-payment industry which undergoing multi-year of secular growth. Near-term catalyst for the company is its potential of transfer to main market listing next year.

Source: Hong Leong Investment Bank Research - 29 May 2019