RGB International Bhd (“RGB”), a leading casino machine supplier has been in the gaming industry for over 30 years. As international border is now reopened, and casino licenses have been rolling out extensively to boost economy, we believe RGB is poised for a turnaround in FY23 and onwards. Consequently, we forecast its FY23 and FY24 net earnings to grow at 898.8% and 8.90% respectively. BUY with TP of RM0.29 premised on PER of 10.4x (5 years average PE) on FY23EPS of 3.0 sen.

With 37 years in Asian gaming industry, RGB has imprinted its strong market share as one of the leading casino gaming machine supplier to licensed casino operators in 9 countries namely, Malaysia, Singapore, Cambodia, Philippines, Macau, Vietnam, Timor-Leste, Nepal and Laos. It has 2 main core business operations; (i) sales and marketing, and manufacturing of electronic gaming machines and equipment (SSM); and (ii) machine concession, technical support and management (TSM).

RGB currently has approx. 4.5k gaming machines operating under TSM, where the machines are under concession on profit sharing basis across Asia. For information, TSM segment recorded RM23.3m PBT in FY2019. With the increasing footfall of casinos due to border reopening, we are anticipating this segment to pick up again.

Under the SSM segment, RGB carries third party brands such as Light & Wonder and Aristocrat which are exclusively distributed in certain countries and these brands attained 80% market share of slot machines in Asia. RGB had on 21 September 2022 via its wholly-owned subsidiary, RGB Macau secure RM270m bulk orders from existing customers in the Philippines, its largest market contribution and expect to be delivered in FY2023. This together with the TSM segment recovery, we expect a 67.1% growth in revenue for FY23.

As at end of Dec 2022, RGB has a strong balance sheet with net cash of RM76.2m. This bodes well for RGB to expand its TSM segment moving forward. The company has not paid dividends for the past three financial years. However, its aims to declare a 30% dividend payout in FY23 thus translating to a potential dividend yield of 2.6%/2.9% in FY23/FY24.

Source: Rakuten Research - 19 Apr 2023

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