RGB’s 1QFY21 core net profit of RM2.0m (+13.5% QoQ, -32.4% YoY) came in within expectation, accounted for 18.2% of HLIB full year forecast as we expect stronger quarters ahead. RGB sold 8.0k EDCs and has 84k under its care. While total transaction value in 1QFY21 was higher YoY but ETP revenue was lower due to unfavourable online transaction mix and low-margin e-wallet transaction processing. Reiterate HOLD with unchanged TP of RM1.29. RGB is a rare proxy to robust domestic e-payment industry which is undergoing multi-year of secular growth but valuations have priced this in.

Within expectation. 1QFY21 core net profit of RM2.0m (+13.5% QoQ, -32.4% YoY) matched our expectation, accounting for 18.2% of full year forecasts. We expect stronger quarters ahead in conjunction of major online sales events (11. 11 and 12.12) as well as economic recovery from the pandemic. One-off adjustment in 1QFY21 includes net trade receivable impairment losses (-RM267k) and forex loss (+RM124k).

Dividend. No dividend was declared (1QFY20: none)

QoQ. Top line fell 16.7% to RM19.6m as the 70.2% growth in electronic transaction processing (ETP) was eroded by the contractions in electronic data capture (EDC) and solution & services (S&S) with -21.1% and -33.9%, respectively. However, bottom line gained 13.5% to RM2.0m thanks to lower admin cost (-14.2%) and D&A (-17.2%).

YoY. Sales expanded 17.4% spurred by the growths in EDC (+68.8%) and S&S (+5.2%), sufficiently neutralized ETP’s 43.2% decline which was due to the on-going Covid-19 outbreak and multiple MCOs which took effect since Mar 2020 had affected both the global supply chain and travelling (locally and internationally). Nonetheless , bottom line decreased by 32.4% on the back of higher administrative expenses (+17.3%), D&A (+28.7%) and MI charge (+126.3%).

EDC. Sold 8.0k units in 1QFY21 (4QFY20: 11.5k) to partner banks and has circa 84k EDCs under management. While this may imply sequential weakness, we understand demand remains solid and will be stronger going forward. 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 1QFY21 was higher by 48.5% YoY at RM548m 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 by -43.2% YoY due to unfavourable online transaction mix and low-margin e-wallet transaction processing. We understand the processing traffic coming from the newly acquired e-commerce player is still increasing every month.

Outlook. RGB expects its prospects and outlook remain challenging in FY21 as the resurgence of Covid-19 cases has led government to re-impose CMCO. The Scanpay and Wannatalk acquisitions will enable RGB to provide additional value-added S&S to customers that will complement existing business and provide more robust B2B2C solution.

Forecast. Unchanged as results are in line.

Reiterate HOLD with unchanged SOP-derived TP of RM1.29 (see Figure #2). 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 rich valuations have priced this in, we feel.

Source: Hong Leong Investment Bank Research - 27 Nov 2020