1HFY22 core net profit of RM8.0m (+38.5% YoY) matched our and consensus expectations. EDC sales resumed (+86.0% QoQ) after the hiatus in 1QFY22 as partner banks halted rollout during Phase 1. Total transaction value +10.1% 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 a lower TP of RM2.27.

Within expectations. All-time high 2QFY22 core net profit of RM4.6m (+38.2% QoQ, +21.8% YoY) lifted 1HFY22’s to RM8.0m (+38.5% YoY), which is in line, accounting for 52.3% and 51.7% of HLIB and consensus full year projections, respectively. One off adjustments in 1HFY22 are net reversal of trade receivable impairment (-RM146k), bad debt recovered (-RM13k), forex loss (+RM147k) and PPE disposal loss (+RM1k).

Dividend. None (2QFY21: none). RGB has yet to adopt a dividend policy.

QoQ. Top line gained 45.7% to RM27.4m driven by electronic data capture (EDC) and electronic transaction processing (ETP) with gains of 86.0% and 41.77%, respectively. This was more than enough to offset the decline in solution & services (S&S) that experienced a drop of 12.5%. In turn, core earnings accelerated by 38.2% to RM4.6m.

YoY. Sales grew 32.1% as all business segments recorded healthy expansions: EDC +26.2%, ETP +58.4% and S&S +11.2%. Subsequently, core earnings jumped 21.8% despite higher D&A (+23.2%).

YTD. Turnover strengthened by 14.8% to RM46.3m as the growths in ETP (+71.6%) and S&S (+22.7%) were more than sufficient offset the weakness in EDC (-8.7%). However, bottom line expanded at an even rapid pace of 38.5% thanks to favourable revenue mix with higher contribution from high-margin ETP business.

EDC. Contributed 52.0% of group revenue in 2QFY22. RGB sold 5k units in 2QFY22 (1QFY22: 0; 2QFY21: 10.0k) following the resumption of rollout by partner banks. Recall that rollouts were halted in 1QFY22 due to Phase 1 restrictions. Number of EDC under rental and management has increased to 92.0k in 2QFY22 (1QFY22: 90.9k; 2QFY21: 87.7k).

ETP. Contributed 32.5% of group revenue in 2QFY22. Total transaction value in 2QFY22 was higher by 10.1% QoQ and 28.8% YoY to RM742.7m thanks to robust e commerce transactions boosted by multiple year end blockbuster online sales.

Outlook. RGB has successfully transferred its listing from the ACE Market to the Main Market of Bursa Malaysia which it expects to attract more investors. 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.

Reiterate BUY with lower SOP-derived TP from RM2.28 to RM2.27 (see Figure #2) as we update the dilution from warrant exercise. 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 - 28 Feb 2022