RGB’s 9MFY19 core net profit of RM7.1m (+31%) was in line with expectation, accounted for 77% of HLIB full year forecast. This quarter’s performance was the best ever recorded. On the cumulative basis, the exceptional performance was mainly driven by EDC and ETP which gained 184% and 36%, respectively. RGB believes its outlook remains favourable and confident that newly acquired companies will complement existing core business. Reiterate BUY with TP of RM1.67. 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.

Within expectation. 9MFY19 turnover of RM43.9m (+88%) translated in to a core net profit of RM7.1m (+31%) matching expectation, accounted for 77% of HLIB full year forecast. 3QFY19’s performance was the best quarter ever recorded.

Dividend. None (3QFY18: None).

QoQ. Top line’s sequential gain of 14% was mainly driven by EDC terminals and solution & services (S&S) which expanded 34% and 55%, respectively more than sufficient to offset the 13% decline in electronic transaction processing (ETP). The ETP contraction is not a surprise as this is due to the seasonal effect whereby 2Q is usually boosted by online mega sales (such as double 11 and double 12) coupled with Christmas festivity. Despite higher D&A, bottom line grew 22% to RM2.7m partly aided by the lower effective corporate tax rate of 20% (2QFY19: 25%).

YoY. Sales almost doubled (+95%) to RM15.5m thanks to the expansions in all three business segments led by EDC with 182% gain, followed by ETP and S&S with 38% and 20% improvements, respectively. Subsequently, core net profit expanded by 44% to RM2.7m although D&A’s 74% increase and higher effective corporate tax of 20% (3QFY18: 18%).

YTD. Cumulatively, revenue strengthened 88% to top RM43.9m on the back of superior EDC and ETP growths of 184% and 36%, respectively, more than sufficient to offset S&S’ -7% decline. Despite higher D&A and effective corporate tax rate of 25% (9MFY18: 22%), adjusted core earnings expanded by 31% to RM7.1m.

Outlook. RGB believes that its prospects and outlook remain favourable in 2019. This is premised on its future plans and the implementation of the Payment and Card Reform Framework (PCRF) by BNM to promote wider acceptance and the usage of electronics payments. The acquisitions (Buymall and Anypay) undertaken will allow RGB to provide additional value-added services on top of its all-in-one-digital payment terminals which were successfully developed and deployed.

Forecast. Unchanged as results are in line. Reiterate BUY on the back of unchanged fair value of RM1.67 based on SOP valuation (see Figure #2), implying an upside potential of 34%. We like the company as it is a rare proxy to the robust domestic e-payment industry which undergoing multi-year of secular growth 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. Near-term catalyst for the company is its potential of transfer to main market listing next year.

Source: Hong Leong Investment Bank Research - 28 May 2019