1QFY22 core net profit of RM3.4m (+88% QoQ, +71% YoY) matched our and consensus expectations. While EDC business was weak, there was no security concern regarding its vendor as order resumed. Total transaction value +7% QoQ supported by robust e-commerce transactions. As a B2B2C SaaS provider, RGB would be able to form partnerships with digital players to enjoy long-term recurring revenue stream. Reiterate BUY with unchanged TP of RM2.28.

Within expectations. 1QFY22 revenue of RM18.8m translated into a core net profit of RM3.4m (+88.0% QoQ, +71.0% YoY), which is in line, accounting for 22.0% and 20.8% of HLIB and consensus full year projections, respectively. One-off adjustments in 1QFY22 are net reversal of trade receivable impairment (-RM241k), bad debt recovered (-RM5k), forex loss (+RM146k) and PPE disposal loss (+RM1k).

Dividend. None (1QFY21: none). RGB has yet to adopt a dividend policy.

QoQ. Top line gained 7.3% to RM18.8m driven by electronic transaction processing (ETP) and solution & services (S&S) with gains of 36.7% and 74.1%, respectively. This was more than enough to offset the decline in electronic data capture (EDC) that experienced a drop of 24.4%. However, core net profit accelerated significantly by 88.0% to RM3.4m thanks to (i) favourable revenue mix with higher contribution from high-margin ETP business; and (ii) lower admin expenses with -6.2%. This was achieved despite the higher D&A by 9.9%.

YoY. Sales dropped 3.7% solely attributable to the weakness in EDC (-39.7%) and entirely erased the expansions in both ETP (+94.7%) and S&S (+35.0%). However, core earnings leaped strongly by 71.0% driven by high-margin ETP business, offsetting the higher admin expenses (+19.7%) and D&A (+55.4%).

EDC. Contributed 40.7% of group revenue in 1QFY22. RGB did not sell any units (4QFY21: 2.0k; 1QFY21: 8.0k) as partner banks had already frontloaded their orders and rollouts were handicapped by Phase 1. We understand the order from one of the partner banks has resumed and so far no security concern regarding the EDC vendor. Number of EDC under management has also fell to 90.9k in 1QFY22 (4QFY21: 93.3k; 1QFY21: 80.6k) as some businesses have folded due to the prolonged lockdown.

ETP. Contributed 33.4% of group revenue in 1QFY22. Total transaction value in 1QFY22 was higher by 6.7% QoQ and 23.1% YoY to RM674.7m thanks to robust e commerce transactions cushioning the lower offline transactions.

Outlook. RGB has submitted the application for Main Market transfer to SC on 30 Apr 2021 and expects to complete the exercise soon. The acquisition of Wannatalk and ScanPay allows RGB to build a complete ecosystem by integrating its core capability in payment. VSTB will facilitate RGB to further expand and develop a more robust B2B2C environment by providing innovative products and services to its clients, such as on-demand insurance, catering to the special needs of individual and businesses. 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. At the same time, we also introduce FY24 projections. Reiterate BUY with unchanged SOP-derived TP of RM2.28 (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 (i) robust growth in EDC terminals; (ii) regulatory push to drive e-payment adoption; (iii) riding on e-wallet trend; and (iv) beneficiary of China cross-border e-commerce trend.

Source: Hong Leong Investment Bank Research - 23 Nov 2021