$RGB / 0037 (RGB INTERNATIONAL BHD) sharing from broker remisier
RGB International (RGB MK/BUY/RM0.395/TP:RM0.66)
Refining Foundations馃
馃敼 2Q24 result within expectations. RGB reported softer revenue of RM99.6m (-70% yoy) and net profit of RM18.9m (-29% yoy). The yoy decline is mainly due to weaker SSM sales. 1H24 bottomline profit made up only 36% of our 2024F full-year forecast, but is deemed within as we anticipate a much stronger 2H24.
馃敻SSM sales still on track to hit our 2024 forecasts. SSM sales appear weaker yoy, normalizing from 2Q23鈥檚 exceptional bulk sales order of c.RM270m to Solaire North. Notably, 2Q24 SSM sales of 700 slot machines improved over historical quarterly run-rate on stronger replacement demand, leading 1H24鈥檚 1900 slot machines sales to achieve 42% of our 2024 forecasts.
馃敼 TSM posted a solid comeback with meaningful margin uptick, as revenue returned to c.95% of pre-pandemic鈥檚 level. More importantly, we鈥檝e observed a trend of meaningful margin expansion (PBT margin +11.5ppt yoy to 20.1ppt), presumably reflecting lower OPEX, better performance and lower machines depreciation after progressive restructuring into a lease-to-own model.
馃敻 Declared 0.6 sen interim dividend, bringing 1H24 dividends to 1.2sen. This implies a dividend yield of 3% and payout ratio of 45%. We retain our 2024F DPS forecasts of 2.9sen based on 40% payout ratio, which implies lush dividend yield of c.7.5%. Should management raise the dividend payout ratio to 50%, prospective yields will likely be 9-10%.
馃敼 Saving the best for a fantastic 2H24. We anticipate 2H24 earnings to be substantially stronger than 1H, mainly bolstered by higher SSM delivery. To recall, RGB earlier secured a huge RM383m (US$81.3m) SSM contract from PACGOR for 1,968 slot machines. We understand that delivery and earnings translation will be in 2H24.
馃敻 Bargain financial matrixes still supporting our investment thesis. RGB鈥檚 current bargain valuations of 5.4x 2024F PE (3.5x ex-cash PE) and net cash of about RM207m (c.34% of market cap) is still deep-in-value and poised for re-rating especially with strong earnings visibility in 3Q24.
馃敼 Maintain BUY with unchanged target price of RM0.66, which implies 9x 2024F PE (pre-pandemic鈥檚 mean), 4x 2024F ex-cash PE, and 4.5x 2024F EV/EBITDA.