All-time high quarterly earnings lifted 1HFY21 core net profit to RM5.8m (-11.0% YoY) which is within expectation. RGB sold 5k EDCs and has 88k under its care. Total transaction value in 2QFY21 was higher QoQ boosted by major year-end online sales events including 11.11 and 12.12. As a B2B2C SaaS provider, RGB would be able to form partnerships with various digital players to enjoy long term recurring revenue stream. Upgrade to BUY with higher TP of RM2.05.

Within expectation. Record-breaking 2QFY21 core net profit of RM3.8m (+94.0% QoQ, +6.2% YoY) brought 1HFY21 sum to RM5.8m (-11.0% YoY) which matched our expectation, accounting for 53.7% of full year forecast. 1H is usually the stronger half boosted by major online sales events, such as 11.11 and 12.12. One-off adjustments in 1HFY21 are net trade receivable impairment losses (-RM380k), bad debt recovered (-RM12k), PPE disposal loss (+RM4k) and forex loss (+RM22k). No dividend was declared (2QFY20: none).

QoQ. Top line gained 6.2% to RM20.8m as electronic transaction processing (ETP) and solution & services (S&S) respective growths of 74.2% and 6.3% were sufficient to offset the 11.1% decline in electronic data capture (EDC) In turn, bottom line almost doubled to RM3.8m thanks to favourable revenue mix despite higher admin expense (+6.7%) and D&A (+24.9%).

YoY. Sales fell 8.6% due to the contraction in EDC (-17.0%), nullified the expansions in ETP (+1.9%) and S&S (+6.8%). Despite higher D&A, connectivity and staff costs, earnings increased by 6.2% on the back of improved margin from EDC rental and maintenance segment, higher other income arising from government’s wage subsidy programme and associate contribution.

YTD. Turnover advanced 2.4% mainly driven by EDC (+13.6%) and S&S (+6.1%), more than sufficient to offset the lacklustre ETP (-21.0%). However, core net profit retraced 11.0% to RM5.8m impacted by higher D&A (+43.2%)

EDC. Sold 5k units in 2QFY21 (1QFY21: 8k) to partner banks and has circa 88k EDCs under management. While this may imply sequential weakness, we understand demand remains solid and will be stronger going forward.

ETP. Total transaction value in 2QFY21 was higher by 5.1% QoQ at RM576m thanks to major e-commerce year-end sales cushioning the lower offline transactions as a result of significantly lower inbound travellers.

Outlook. With the completion of Special Issue, RGB is in the midst of submission for Main Market listing transfer and expect to be completed by mid-21. The acquisitions of Wannatalk and ScanPay allows RGB to build a complete ecosystem after integrating with them with its core capability in payment. As a B2B2C SaaS provider, RGB would be able to form partnerships with various digital players to enjoy long -term recurring revenue stream.

Forecast. Unchanged as results are in line. Upgrade to BUY after raising our SOP-derived TP from RM1.29 to RM2.05 (see Figure #2) as we lift its PE from 40x to 60x (still at a 27% discount to international peers in Figure #3) and net cash position post-Special Issue. 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.

Source: Hong Leong Investment Bank Research - 19 Feb 2021