9MFY22 core net profit of RM12.9m (+31.1% YoY) matched our and consensus expectations. Despite the weakness in top line, bottom line improved QoQ and YoY mainly due to favourable revenue mix with higher contribution from higher margin ETP business. EDC sales was soft as rollouts by partner banks remained lacklustre. Total transaction value +16.2% YoY 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 but with a lower TP of RM1.88.

Within expectations. All-time high 3QFY22 core net profit of RM4.9m (+5.8% QoQ, +20.5% YoY) lifted 9MFY22’s to RM12.9m (+31.1% YoY), accounting for 84.5% and 79.8% of HLIB and consensus full year projections, respectively. This is deemed in line as 4Q is traditionally weaker (9MFY21 accounted for 84.6% of FY21’s core net profit). One-off adjustments in 9MFY22 are net impairment losses on trade receivables (+RM204k), bad debt recovered (-RM15k), forex loss (+RM66k) and PPE disposal loss (+RM8k).

Dividend. None (3QFY21: none). RGB has yet to adopt a dividend policy.

QoQ. Top line contracted by 16.8% to RM22.8m attributable to the weaknesses in electronic data capture (EDC) and solution & services (S&S) which declined 37.3% and 26.3%, respectively. These were more than enough to offset the expansion in electronic transaction processing (ETP) that experienced a gain of 20.7%. However, core earnings grew by 5.8% to RM4.9m thanks to favourable revenue mix as ETP yields much higher margin and lower D&A (-22.9%).

YoY. Sales fell 21.4% dragged by both EDC (-57.8%) and S&S (-10.9%), which was more than sufficient to offset the jump in ETP (+146.0%). Despite the lower revenue, core earnings jumped 20.5% for the same reasons mentioned above.

YTD. Turnover was rather flat at RM69.1m as the growths in ETP (+96.2%) and S&S (+11.9%) were neutralized by the dismal performance in EDC (-31.7%). Despite the higher D&A (+22.8%), bottom line expanded at a rapid pace of 31.1% thanks to favourable revenue mix with higher contribution from high-margin ETP business.

EDC. Contributed 39.1% of group revenue in 3QFY22. RGB sold 2.3k units in 3QFY22 (2QFY22: 5k; 3QFY21: 18.6k) as rollouts by partner banks remains lacklustre. Number of EDC under rental and management has increased to 99.9k in 3QFY22 (2QFY22: 92.0k; 3QFY21: 91.0k).

ETP. Contributed 47.1% of group revenue in 3QFY22. Total transaction value in 3QFY22 was lower by 5.8% QoQ but higher by 16.2% YoY to RM699.1m thanks to robust e-commerce transactions, especially China cross-border transactions.

Outlook. 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 RM2.27 to RM1.88 (see Figure #2). Considering US Fed’s hawkish stance to tame inflationary economy, we lower RGB’s PE valuation from 60x to its 3-year forward mean of 48x (see Figure #3). 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 - 24 May 2022