RGB’s 1HFY20 core net profit of RM6.5m (+30% YoY) matched expectation, accounted for 52% of HLIB full year forecast. The outperformance was mainly driven by EDC. Proposed to place out 45m new share to Bumiputera investors in order to comply with Main Market listing requirement. Reiterate HOLD with unchanged TP of RM1.45. RGB is a rare proxy to robust domestic e-payment industry which is undergoing multi-year of secular growth. However, we reckon that current valuations have priced these positives in.

New placement. RGB proposes to implement a special issue of up to 45m new ordinary share (11.6% of existing issued share capital) to third party Bumiputera investors to facilitate its Main Market listing transfer. The proceeds are largely earmarked for capex (EDC purchase), followed by revPAY and IT enhancement and expansion, working capital and the expenses of this proposal.

Within expectation. 2QFY20 core net profit of RM3.6m (+24% QoQ, +62% YoY) brings 1HFY20’s total to RM6.5m (+30% YoY), accounted for 52% of HLIB full year forecasts. One-off adjustment in 2QFY20 includes bonus issue expense that amounted to RM150k.

Dividend. None (2QFY19: None).

QoQ. Top line gained 37% to RM22.7m driven by expansions recorded by EDC and solution & services’ (S&S) with growths of 81% and 5%, respectively. This was partly offset by the decline electronic transaction processing (ETP) by 3%. Despite the higher tax rate, core net profit gained 24% to RM3.6m mainly driven by stronger sales.

YoY. Sales rose by 67% with similar trends whereby EDC and S&S grew 97% and 430%, respectively which more than sufficient to nullified ETP’s 8% weakness. The amazing S&S performance was attributable to the positive contributions from the newly acquired Anypay and Buymall. Bottom line increas ed at a similar pace of 62% as lower EBITDA margin was cushioned by lower tax rate.

YTD. Turnover jumped 39% to RM39m thanks to higher contribution of all products segments, where EDC +28%, ETP +8% and S&S +364%. In turn, core earnings was elevated by 30% to RM6.5m.

EDC. Sold 12.8k units in 2QFY20 (1QFY20: 3k) to partner banks. 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 2QFY20 was higher by 5% QoQ at RM388m spurred by online mega sales such as 11.11 and 12.12. However, ETP revenue was lower QoQ due to lower average value per transaction processed. We understand the processing traffic coming from the newly acquired e-commerce player is increasing every month and there is ample room for growth.

Forecast. Unchanged as results are in line. Reiterate HOLD on the back of unchanged TP of RM1.45 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; and (4) beneficiary of China cross-border e-commerce trend. However, current valuations appear to have priced these positives in.

Source: Hong Leong Investment Bank Research - 26 Feb 2020