RGB’s FY19 core net profit of RM10.5m (+33%) beat expectation, accounted for 109% of HLIB full year forecast. On the cumulative basis, the exceptional performance was driven by all 3 business segments, where EDC, ETP and S&S gained 123%, 20% and 52%, respectively. RGB believes its outlook remains favourable and confident that newly acquired companies will complement existing core business. Reiterate BUY with TP of RM2.00. 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.

Exceeds expectation. 4QFY19 core net profit of RM2.8m (+3% QoQ, +11% YoY) brings FY19’s total to RM10.5m (+33% YoY) which beat expectation, accounting for 109% of our full year forecasts. One-off adjustments in 4QFY19 amounted to RM1m which include provisions for acquisitions, bad debts, impairments, forex loss and disposal gain.

Dividend. None (4QFY18: None).

QoQ. Top line was rather flat at RM15.4m whereby solution & services’ (S&S) gain of 98% was fully offset by the contractions in EDC terminals and electronic transactions processing (ETP) with -3% and -16%, respectively. In 4QFY19, EDC terminals were offered to bank customers at a lower ASP while the lower ETP was due to seasonal factor. However, core net profit was stronger by 3% to RM2.8m aided by higher GP margin (4QFY19: 55% vs 3QFY19: 51%) and positive tax impact.

YoY. Sales surged by 28% to RM15.4m thanks to the expansions in all three business segments led by S&S with 627% gain, followed by EDC with 37% while ETP fell by 16%. Despite D&A’s 55% increase and lower GP margin (4QFY19: 55% vs 4QFY18: 62%), core net profit expanded by 11% to RM2.8m aided by lower tax rate.

YTD. Cumulatively, revenue strengthened 68% to top RM59.4m on the back of superior growths from all 3 segments where EDC, ETP and S&S expanded 123%, 20% and 52%, respectively. Despite higher D&A and lower GP margin (FY19: 54% vs FY18: 65%), adjusted core earnings expanded by 33% to RM10.5m.

Outlook. RGB believes that its prospects and outlook remain favourable in FY20. 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. Minor tweaks of assumptions (S&S GP margin and effective tax rate) led to higher FY20-21 core net profit by 1.4% and 1.1%, respectively.

Reiterate BUY on the back of higher fair value of RM2.00 based on SOP valuation (see Figure #2), implying an upside potential of 33%. 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 - 30 Aug 2019