Cashless wave to lift Revenue’s growth

This article first appeared in The Edge Financial Daily, on October 8, 2018.
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KUALA LUMPUR: Cashless payment solution provider Revenue Group Bhd, whose shares have tripled from its initial public offering (IPO) price since its July debut, expects to see double-digit earnings growth for the current financial year ending June 30, 2019 (FY19), which will be partly driven by the launch of the company’s smart payment terminals that it believes will change the cashless payment landscape here.

“Moving forward, we will deliver a consistent double-digit growth [in terms of financial performance],” its group chief executive officer and managing director Eddie Ng Chee Siong told The Edge Financial Daily in a recent interview.

The growth is driven by Bank Negara Malaysia’s initiative to realise a cashless society by encouraging the switch from paper-based payments to electronic payments, and by pushing a wider outreach of e-payment infrastructure, such as point-of-sale (POS) terminals, said Ng.

And the central bank’s initiative to promote digital payments is also well supported by banks, said Ng, as the banks had continued to make good progress by pushing retailers to deploy more POS terminals.

Revenue, an ACE Market listee, operates in three business segments, namely the distribution, deployment and maintenance of its smart payment or electronic data capture (EDC); electronic transaction processing services for credit and debit cards; and solutions and services related to the cashless payment infrastructure.

With the onset of the digital payment wave, Revenue aims to focus on deploying more smart EDC terminals that are powered by its own technology built on the Android platform, which Ng believes could be a “game changer” in the country’s digital payment landscape. Ng likened the new EDC terminal to a smartphone and the traditional EDC terminal to an analogue cell phone of old.

With digital technology, the smart EDC or POS terminals now come equipped with a camera, scanner and a touchscreen, and can accept quick response payments. The company is going to roll out the smart EDC terminals for two banks — totalling 9,000 units — at end-October. The anticipated roll-out will raise the number of EDC terminals the company manages nationwide by about 45% to 29,100.

“We have used the RM8.1 million [from the IPO proceeds] to purchase the 9,000 smart EDC terminals. The group will also deploy an additional 10,000 more smart EDC terminals in FY19,” Ng said. “We will continue to invest in smart EDC terminals.”

Ng, however, is tight-lipped on the profit margin the company enjoys from rolling out the EDC terminals, and only said: “The more EDC terminals we deploy, the more [income] we will generate.”

Revenue is now looking to move all its partner banks into the smart EDC terminal ecosystem by calendar year 2020. Achieving this can be a lengthy process though, as it will have to meet the compliance requirements of each bank.

Complying with and getting certified by the banks as a vendor who meets their respective requirements takes about three to six months per bank, said Ng. And the company is working on getting certified with the remaining eight banks it has partnered with.

Revenue now has three core businesses. According to Bloomberg data, Revenue’s largest revenue contributor is its electronic transaction processing services for credit and debit cards (47.3%), followed by the distribution, deployment and maintenance of EDC terminals (44.1%). The segment for solutions and services related to payment infrastructure comes last (8.6%).

Ng said the first two segments will continue to be the company’s breadwinner in FY19. But Revenue aims to see equal contributions to its income from all three core businesses by FY20, as it pushes for further growth of its solutions and services related to the payment infrastructure segment.

 

Expansion to Myanmar targeted for first quarter of 2019

On regional expansion, Ng updated that Revenue aims to make its maiden Myanmar venture by the first quarter of the next calendar year.

The group has already identified one local Myanmar partner to kick-start its expansion. The partnership is pending approval of local authorities at the moment, said Ng. It is also eyeing Cambodia, though there is not much progress to report for now, he added.

According to Revenue’s prospectus, the company plans to use RM1.5 million to expand its business to both Myanmar and Cambodia within 24 months of its listing.

Investors who have subscribed to Revenue’s IPO are no doubt the envy of many now. The company’s share price had soared from 37 sen apiece to close at RM1.12 last Friday — that is a whopping 203% jump — giving it a market capitalisation of RM249.59 million.

Ng attributed the share price jump to the company being in the right industry and investor’s confidence in its management. He also stressed the importance of engaging with investors to provide them with a better understanding of the company’s business model and prospects.

“We have been doing a number of briefings for fund managers, analysts and potential investors since we listed on Bursa Malaysia,” he said, which he believes had also boosted investors’ confidence.

For FY18, the cashless payment solution provider’s net profit rose a marginal 2% to RM7.09 million from RM6.93 million for FY17, though revenue jumped 33% to RM35.36 million from RM26.53 million.

Ng said the small net profit rise was because the company had, in FY17, recognised a gain on disposal of investment properties. Excluding the one-off gain’s impact, Revenue would have recorded a core net profit of RM5.22 million for FY17, which would have translated into a 45% year-on-year growth based on its FY18 core net profit of RM7.58, said Ng.

Revenue has yet to set any dividend policy to reward shareholders, but Ng said the company is in a growing phase, so he would rather conserve cash to fund that growth. At its current share price, Revenue is trading at a trailing price-earnings ratio of 32.26 times, which Ng said is in line with the industry’s.