We believe that RGB has become Lazada Malaysia’s partner to process payments made by Malaysian consumers via internet banking for purchases on Lazada online marketplace. This is expected to add RM4.6bn worth of transaction value processed by RGB. As a result, we increase FY19-21 earnings by 6-18% after factoring the expected incremental contribution from Lazada. Maintain BUY with higher SOP-driven TP of RM1.98 (from RM1.67) after earnings forecast adjustment and higher earnings multiple.

Lazada on board? We purchased some items on Lazada over the weekend using internet banking and we found out that the name of Revenue Harvest Sdn Bhd (100% subsidiary of RGB) were shown in the receipts of our purchases. Pending further clarification from the management, we believe that RGB has become Lazada Malaysia’s partner to process payments made by Malaysian consumers via internet banking for purchases on Lazada online marketplace.

Most visited e-commerce platform. According to meta-search platform iPrice’s analysis, Lazada is Malaysia’s most visited e-commerce platform as at 4Q18 with average monthly visits of 26.2m. Lazada is also the most visited e-commerce platform in Southeast Asia for 4Q18 with 183.4m visits.

Company A’s payment arrangement explained. We deem the payment arrangement with Lazada is similar with that of Company A’s affiliate online marketplace due to similar business nature, explanation on arrangement between RGB and Company A would shed more lights on potential financial impact of on boarding of Lazada. Since 2013, RGB has been Company A’s only partner in Malaysia to process payments made by Malaysian consumers via internet banking for purchases on Company A’s affiliate online marketplace in China (for desktop). RGB processes online payments made via local banks’ current and savings accounts. In turn, RGB earns a pre-agreed commission on the transactional value it processes.

Potential financial impact. According to Statista’ latest data (Feb 2019), Malaysia’s e-commerce market is expected to expand 19% to USD4.5bn (RM18.5bn) in 2020 and will continue to grow at a CAGR of 9.1% from 2020 to 2023. Inferring from iPrice’s data, Lazada commands about 50% of Malaysia’s e-commerce visitations and this may imply that Lazada’s Gross Merchandise Value is about RM9.3bn in 2020. Assuming that the equal split between online banking and credit card payments, RGB may potentially be processing additional RM4.6bn in transaction value, or about 4x more than what it had in FY18.

Forecast. Increase FY19-21 earnings by 5.5%, 17.6% and 18.1% respectively after factoring the expected incremental contribution from Lazada. We assume additional RM4.6bn transaction value processed from Lazada.

Maintain BUY, TP: RM1.98. Maintain BUY with higher SOP-driven TP of RM1.98 (from RM1.67) after earnings forecast adjustment and higher earnings multiple of 34x (from 32x) due to higher valuation of peers. 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 - 15 Jul 2019