RGB’s FY20 core net profit of RM8.9m (-15% YoY) came in below expectation, accounted for 89% of HLIB full year forecast. The disappointment was mainly due to the unfavourable online transaction mix despite higher GMV. RGB sold 11.5k EDC and has 74k under its care. Reiterate HOLD with higher TP of RM1.29. 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.

Below expectation. 4QFY20 core net profit of RM1.7m (+148% QoQ, -38% YoY) brought FY20’s total to RM8.9m (-15% YoY), accounted for 89% of HLIB full year forecasts. Major deviations were weaker-than-expected contribution from electronic transaction processing (ETP) along with its margin. One-off adjustment in 4QFY20 includes net trade receivable impairment losses, forex loss and PPE gain disposal which amounted to RM1.2m.

Dividend. No dividend was declared (4QFY19: none). Likewise, for FY20 and FY19.

QoQ. Top line gained 51% to RM23.5m driven by electronic data capture (EDC) and solution & services (S&S) with growths of 61% and 96%, respectively. These were more than sufficient to offset the 31% contractions in ETP. In turn, bottom line jumped 148% to RM1.7m despite higher administration expenses and D&A.

YoY. Sales expanded 52% spurred by the growths in EDC (+80%) and S&S (+163%), sufficiently neutralized ETP’s 57% decline which was due to Covid-19 impact on global e-commerce supply chain disruption and travel curtailment. The amazing S&S performance was attributable to the positive contributions from the newly acquired Anypay and Buymall. However, bottom line decreased by 38% on the back of higher administrative expenses, D&A and MI charge.

YTD. Turnover jumped 32% to RM578.4m thanks to higher contribution of EDC (+36%) and S&S (+229%), offsetting the weakness in ETP (-21%). Nonetheless, core net profit fell by 15% to RM8.9m due the higher cost structure mentioned above.

EDC. Sold 11.5k units in 4QFY20 (3QFY20: 6.0k) to partner banks and has circa 74k EDC under management.

ETP. Total transaction value in 4QFY20 was higher by 16% QoQ at RM427m mainly thanks to MCO-boosted e-commerce sales cushioning the lower offline transactions as a result of significantly lower inbound travellers. However, ETP revenue declined - 31% QoQ due to unfavourable online transaction mix. We understand the processing traffic coming from the newly acquired e-commerce player is still increasing every month, reaching more than RM70m GMV in recent month.

Forecast. Based on the deviations above, we cut our FY21-22 earnings projections by 22% and 14%, respectively.

Reiterate HOLD and raise our SOP-derived TP from RM1.19 to RM1.29 (see Figure #2) as we rollover valuation to FY22 (previously CY21) and lift PE multiple to 40x (from 34x) in line with global peers’ rerated valuation. RGB is a 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 - 1 Sept 2020