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Singapore Investment


  RGB 0037 RGB INTERNATIONAL BHD Uptrend for The Gambling Industry?

As countries gradually reopen and China implemented border opening on January 8th this year, which undoubtedly further boosted the global tourism industry. Not only the catering industry but also the entertainment industry, such as gambling industry, has entered the path of recovery.  

Today, I would like to share with readers one of Malaysia's largest gambling-related companies, RGB International Berhad (RGB, 0037).

According to the company's 2021 annual report, RGB was established in 2003 and is headquartered in Penang, Malaysia. RGB is an electronic gaming device supplier and a listed company on the Main Board. In fact, the company first entered the gambling industry in 1986 through its subsidiary, RGB Sdn Bhd, providing various gambling equipment and services. Now, it has become a leading electronic gambling and casino equipment supplier in Malaysia.

Referring to their official website, RGB has over 300 employees operating businesses in several Asian countries, including Malaysia, Cambodia, the Philippines, Macau, Singapore, Laos, Vietnam, Timor-Leste, and Nepal.

RGB's main businesses are divided into three categories: Sales and Marketing (SSM), Technical Support and Management (TSM), and Engineering Services.

Most of the company's revenue comes from SSM business, which is the manufacturing and selling of various electronic gaming machines (EGMs), gambling equipment, and various gambling-related parts. Its business accounted for about 69.73% of total revenue in the 2021 fiscal year.

The second-largest business is TSM, which mainly provides equipment franchise plans to Asian gambling companies and provides customers with technical, management, marketing, and consulting services. This business accounted for approximately 29.71% of total revenue in the 2021 fiscal year.

The third business is Engineering Services, which provides technical support and repair services. This business contributed 0.22% of operating revenue in the 2021 fiscal year.

Regarding financial performance, RGB achieved a total revenue of approximately RM216.33 million in the 2021 fiscal year, an increase of 17.55% from the low base in 2020. The company's net loss also decreased from approximately RM28.74 million in 2020 to about RM9.82 million, mainly due to the recovery of the Asian gambling market.

Looking at the latest quarterly performance, namely the fourth-quarter report (Q4FY2022) announced by RGB in February 2023, the company achieved a revenue of RM119.77 million, a year-on-year increase of 111.57%. This was mainly due to the increase in product sales driving the growth.

The company also achieved a net profit of approximately RM9.33 million in that quarter, about 121 times higher than the net loss of about RM76,000.00 in the same period of 2021, mainly due to the strong rebound in the operating ability of the business departments in multiple countries.

Interestingly, the company's TSM business showed a pre-tax loss in that quarter. This was due to a fire that occurred at a casino in Cambodia last December, resulting in an impairment of assets of about RM5.90 million in that quarter. However, the company has bought insurance for these devices and expects to receive insurance compensation in the future.

To sum up the full-year performance of the 2022 fiscal year, RGB's revenue was RM272.47 million, and the net profit was RM4.63 million, successfully turning losses into gains after two consecutive years of losses. In addition, the company's cash flow is stable, and it is a net cash company with no debt.

It is worth noting that RGB's wholly-owned subsidiary, RGB (Macau), received new bulk orders from existing customers in September 2022, with a total value of RM270.00 million. According to reports, product delivery is expected to occur in 2023 and revenue will be recognized using the cash on delivery method. This new order is expected to bring positive profit performance to the company in 2023.

Looking ahead, with the reopening of borders and the increase in international travelers, the tourism and hotel industries are expected to continue to recover, especially in the regions where the company operates. Therefore, despite facing inflationary pressures on operating costs, management expects better performance in 2023, supported by optimistic market prospects and strong orders.

However, the company also faces some business risks, including uncertainty in the Asian gaming market and intensified competition. In addition, changes in government regulations, such as policies to impose sin taxes on the tobacco, alcohol, and gambling industries, which will affect the company's after-tax net profit.

So, what are your thoughts on RGB, currently valued at RM340.60 million with a PE ratio of 73.58?



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