1HFY23 core net loss of RM16.9m (1HFY22: +RM8.0m) missed expectations. The negative surprise was due to weaker-than-expected ETP contribution and admin costs. Revenue from the EDC rental and maintenance fell due to the downward revision on the rental rate per unit with partner banks. The ETP income decrease was attributable to lower average value per transaction processed and the accrual and repayment of outstanding transaction settlement to an oversea online merchant. We cease coverage on Revenue and our previous HOLD recommendation and SOP-derived TP of RM0.80 should no longer be used as a reference going forward.

Deeper into the red. 2QFY23 core net loss of -RM14.4m (1QFY23: -RM2.5m, 2QFY22: +RM4.6m) brought 1HFY23’s to -RM16.9m (1HFY22: +RM8.0m), missed expectations, against our and consensus full year PATAMI forecasts of +RM9.6m and +RM9.3m, respectively. The negative surprise was due to weaker-than-expected ETP contribution and admin costs. One-off adjustments in 1HFY23 are trade receivable impairment (+RM822k), fair value gain in quoted shares (-RM312k), net forex gain (- RM203k), bad debt recovered (-RM8k) and PPE disposal gain (-RM3k).

Dividend. None (2QFY22: none). RGB has yet to adopt a dividend policy.

QoQ. Top line fell 77% to RM4.9m as electronic transaction processing (ETP) and electronic data capture (EDC) fell by 171.5% and 48.9% respectively, more than sufficient to offset the 4.1% gain in solution & services (S&S) In turn, RGB recorded second quarterly core net loss of RM14.4m (1QFY23: -RM2.5m) since listing with on the back of higher cost structure and finance expense.

YoY. Sales plunged 82.2% as all business segments deteriorated led by ETP (-148.5%), followed by EDC (-58.8%) and S&S (-22.5%). For the same reason mentioned above, core earnings suffered a loss of RM14.4m (1QFY22: +RM4.6m).

YTD. For the same explanation as above, top and bottom lines experienced an underperformance with -44.4% and -RM16.9m (1HFY22: +RM8.0). Breakdown of sales growth: EDC (-20.1%), ETP (-88.7%) and S&S (-29.1%).

EDC. Revenue from the rental and maintenance fell due to the downward revision on the rental rate per unit with partner banks.

ETP. The income decrease was attributable to lower average value per transaction processed and the accrual and repayment of outstanding transaction settlement to an oversea online merchant amounted to RM9.6m.

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.  

Cease coverage. We cease coverage on Revenue Group for the following reasons: (i) foresee that it will take more time to turnaround; (ii) management tussle; and (iii) legal suits involving management. Our previous HOLD recommendation and SOP derived TP of RM0.80 (see Figure #2) should no longer be used as a reference going forward.

Source: Hong Leong Investment Bank Research - 1 Mar 2023