RGB’s 1QFY20 core net profit of RM2.9m (+4% QoQ, +5% YoY) is all-time high and matched expectation, accounted for 23% of HLIB full year forecast. The outperformance was driven by ETP and S&S while EDC moderated. RGB believes its outlook remains favourable driven by all 3 business pillars with more initiatives in the pipeline. Reiterate BUY with unchanged TP of RM1.95. RGB is a rare proxy to robust domestic e-payment industry which is undergoing multi-year of secular growth.

Within expectation. 1QFY20 core net profit of RM2.9m (+4% QoQ, +5% YoY) is within expectation, accounting for 23% of our full year forecasts. One-off adjustments in 1QFY20 amounted to RM60k which include reversal of impairment losses on trade receivables, forex, bad debts recovered and gain on PPE disposal.

Dividend. None (1QFY19: None).

QoQ. Top line gained 8% to RM16.7m driven by expansions recorded by electronic transaction processing (ETP) and solution & services’ (S&S) with growths of 30% and 65%, respectively. This was partly offset by EDC’s contraction of 16%. Core net profit inched up by 4% to RM2.9m thanks to higher contribution from high-margin products and lower D&A as the expected useful live of software was increased from 2-3 years to 5 years, matching industry norm.

YoY. Sales rose by 12% with similar trends whereby ETP and S&S grew 30% and 310%, respectively which more than sufficient to nullified EDC’s 22% weakness. The amazing S&S performance was attributable to the positive contributions from the newly acquired Anypay and Buymall. Bottom line increased at a slower pace of 5% mainly due to higher D&A (+19%).

EDC. Sold 3k units in 1QFY20 to two partner banks. While this may imply sequential weakness, we understand demand remain solid and will be stronger going forward with the recently forged partnership with OCBC. RGB will continue to deploy its all-in one EDC (accept both cards and QR) to the market in various stages.

ETP. Total transaction value in 1QFY20 was RM369m and is expected to experience a leap in 2QFY20 spurred by online mega sales days such as 11.11 and 12.12. It has also identified 2 countries for regional expansion, namely Myanmar and Cambodia through partnership structure to provide electronic payment processing services for various card schemes.

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. Besides, we expect RGB to benefit from Budget 2020’s one time RM30 offer to qualified Malaysians in order to promote e-wallets usage.

Forecast. Unchanged as results are in line.

Reiterate BUY on the back of unchanged fair value of RM1.95 based on SOP valuation (see Figure #2). 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 (1) robust growth in EDC terminals; (2) regulatory push to drive e-payment adoption; (3) riding on e-wallet trend; (4) Budget and VMY 2020; and (5) beneficiary of China cross-border e-commerce trend.

Source: Hong Leong Investment Bank Research - 22 Nov 2019