RGB - Mangement on track for FY2016

Corporate presentation by RGB on 4th October 2016.

Please refer to the green highlight.

In 14 November 2016, RGB confirmed the Performace highlight for FY2016.

That’s because the electronic gaming and amusement machine manufacturer hopes to benefit from the government’s incentives given under Budget 2017 for companies.

RGB is going after the maximum reduction in income tax of four percentage points for an increase in chargeable income of 20% and above for assessment year 2017-2018.

According to its managing director Datuk Chuah Kim Seah, who is also a major shareholder of the group with a 26.26% stake as at March 17, 2016, the group is on track to meet its target for FY16.

“We are positive that our [financial] performance in FY16 will not deviate too much from our expectations. We have targeted for double-digit growth in FY17 and with the latest Budget 2017 announcement, we are targeting to achieve a 20% growth [in revenue] to benefit from the tax incentives,” Chuah told The Edge Financial Daily in a telephone interview.

RGB’s financial results have grown from strength to strength in recent years, riding on the gaming-sector growth in Asia-Pacific. Since the group returned to the black in FY12 after four straight years of losses (FY08 to FY11), RGB has consistently maintained a growth of close to double digits in both its top-line and bottom line.

For FY15, the group’s net profit jumped 17.3% to RM21.3 million on the back of a revenue growth of 8.6% to RM233 million from the previous year.

It grew at a faster pace in the first half ended June 30, 2016 (1HFY16). It witnessed an 18.6% year-on-year (y-o-y) increase in net profit to RM12.9 million in 1HFY16, compared with 1HFY15, while revenue grew by 28.8% y-o-y to RM114.1 million.

Chuah shared that the group suffered losses in FY08 to FY11 as a result of impairment. Recall that the bulk of impairment was recorded due to closure of clubs by the Cambodian government in 2009.

Since then, the group has diversified into other countries to help mitigate any regulatory risk in a single country, said Chuah. According to its latest annual report, RGB has presence in the Philippines, Cambodia, Malaysia, Laos, Macau, Vietnam, Timor Leste and Nepal.

As part of plans to turn around, the group had also consolidated its gaming and amusement machines for markets with higher demand.

“With the consolidation process now complete, we can look for new areas to expand based on demand and potential growth. One of the regions that we are looking at is South America. The market is very big and has huge potential. We are looking at a one-year time frame for us to step foot in that region,” said Chuah.

He noted that RGB’s balance sheet had improved, with its borrowings having come down by 79.1% to RM7.44 million as of June 30, 2016, from RM35.6 million as of Dec 31, 2015, after the settlement of its commercial paper and medium term notes.

Recently, RGB has come under the spotlight as it was heavily traded in the market, with an average volume of about 33.6 million in the last four weeks. The group also triggered our momentum algorithm on Oct 31, 2016.

RGB’s share price has also risen in tandem with its improved financial performance, increasing from a low of seven sen in 2012 to close at 23 sen last Friday. At this level, RGB shares are trading at an attractive valuation, with a trailing price-earnings ratio of 13.1 times.

A technical analyst with a local brokerage is of the view that the group’s trading momentum remains strong and positive, in anticipation of its third-quarter earnings report on Nov 23.

“The momentum is strong with resistance at 27 sen, while [the] support level is at about 23.5 sen,” he told The Edge Financial Daily.

He added that the business model of RGB is attractive, as its technical support management segment will see recurring revenue for a long-term period, while its sales and marketing segment helps mitigate long-term risk with the collection of lump sum money for sales of gaming machines.

“I think the slot machine business is a game changer. It leases the machines out and gets steady income,” the technical analyst said.

The growth of RGB reflects that of the industry as a whole. The Association of Gaming Equipment Manufacturers (AGEM) Index posted another increase in October 2016 to 321.90 points after gaining 20.46 points in September 2016. The AGEM Index has reported a y-o-y increase for the 13th consecutive month, rising 124.68 points or 63.2% compared with October 2015.

With a growing industry in an expanding region, a strong balance sheet and attractive valuation, RGB’s growth story remains pretty much intact.

Conclusion:

Hope for the best is coming.