Despite the softer top line, RGB recorded record-breaking quarterly net profit in 3QFY22 thanks to favourable revenue mix with higher ETP contribution as it yields much higher margin and lower D&A. ETP yields the highest gross margin thanks to its asset-light nature and became the major revenue contributor. RGB is embarking on the second phase of tokenization project and managed to secure 2 banks for trials while in talks with another 3. 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 unchanged TP of RM1.88.

Recap. Although 3QFY22 top line weakened to RM22.8m (-16.8% QoQ, -21.4% YoY), RGB recorded all-time high quarterly core net profit of RM4.9m (+5.8% QoQ, +20.5% YoY) and lifted 9MFY22’s to RM12.9m (+31.1% YoY) which accounted 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). The stronger earnings was mainly attributable to favourable revenue mix with higher ETP contribution as it yields much higher margin and lower D&A (- 22.9%).

ETP yields the highest gross margin thanks to its asset-light nature. This became the major revenue contributor and accounted for 47.1% of group revenue in 3QFY22 (3QFY21: 15.0%, 2QFY22: 32.5%). 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. For 9MFY22, ETP contribution surged from 19.1% in 9MFY21 to 37.6% as total transaction value grew 22.7% from RM1.73bn to RM2.12bn. Offline and online total transaction values had almost an equal split. Within offline, e-wallet currently commands the lion share of total transaction value thanks to economy reopening while card schemes have yet to recover to pre-Covid level due to the absence of tourists. RGB is embarking on the second phase of tokenization project and managed to secure 2 banks for trials while in talks with another 3. This will help banks to lower their costs for online debit card transactions. We expect this project to be the next catalyst to further boost 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). Despite the higher unit under rental and management, revenue dropped 10.8% QoQ to RM7.0m mainly due to discounts and rebates offered as a relief to merchants who are suffering from Covid -19 aftermath. For 9MFY22, EDC revenue fell by 31.7% to RM30.9m mainly due to lower sales volume of 12.4k unit vs 9MFY21’s 33.6k unit.

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 unchanged SOP-derived TP of RM1.88 (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 - 15 Jun 2022