RGB International builds South American presence

This article first appeared in The Edge Malaysia Weekly, on September 4, 2017 - September 10, 2017.
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RGB International Bhd, an electronic gaming and amusement machine manufacturer with a footprint in Asia, is slowly building a presence in South America. To test the market, RGB has shipped some slot machines to Mexico and Colombia, and this may be followed by shipments to Peru, Chile and Argentina.

RGB managing director and substantial shareholder Datuk Chuah Kim Seah says the response from Mexico and Colombia has been encouraging so far.As such, the group plans to allocate more machines to South American markets next year.

“This is a very energetic market because a lot of Asian tourists, especially Mainland Chinese, are there,” he tells The Edge in an interview at RGB’s headquarters in Penang.

“Next, we are also looking at neighbouring countries such as Chile and Argentina, but they are still at the exploration stage. How far we can go would depend on how successful we are in Mexico, Colombia and Peru.”

Chuah reveals that during his previous trips to South America, he was accompanied by RGB chief operating officer Datuk Steven Lim Tow Boon, executive director Mazlan Ismail and his son Eng Hwa, who is vice-president of new investment and corporate administration, in order to give them them a feel for the market.

“Mexico is a vibrant country with a big population. It has a beautiful state-of-the-art airport and the nightlife and casinos there are just amazing,” he says.

RGB is 26.78% owned by the 64-year-old Chuah, who has been involved in the gaming and amusement industry for more than 30 years. His younger brother, Kim Chiew, is an executive director with a 2.07% direct stake.

A homegrown integrated services provider, RGB primarily focuses on the sales, marketing and manufacturing of gaming machines and casino equipment. The company offers machine concession programmes as well as engineering support and management.

The growth potential of the market in Latin America is enormous, says Chuah, considering that the region has 300,000 to 400,000 gaming machines.  Mexico has 200,000 and Colombia and Peru are estimated to have 50,000 to 80,000 machines each.

“To start with, we just want to play a small part in these countries and we only need a small percentage of market share. For instance, if we can get 5% of 200,000 machines in Mexico, that is 10,000 already,” he says.

It is interesting to note that people in these countries spend about 25% of their income on entertainment, including gaming and leisure.

“That’s their style of living,” says Chuah, adding that many Spanish and Asian gaming companies have already expanded into the South American casino markets, especially into Mexico.

“If they can do it, why can’t we?” he asks.

He says the risk of the business venture is limited for RGB because its cost of entry is low, while for big corporations, the production costs are usually higher due to their overheads.

“Not only that, we have the flexibility to move the machines from one country to another if they are not performing. For example, we can transfer our machines from Mexico to Nicaragua, Panama, or other Central American countries. There are plenty of opportunities to explore,” he says.

RGB has regional offices in Kuala Lumpur, Singapore, Macau, Cambodia, the Philippines, Vietnam, Timor-Leste, Laos and Nepal. The group has a workforce of more than 500 employees, including 200 engineers and qualified technicians.

Today, RGB has over 40 revenue and profit-sharing concessions in Cambodia, the Philippines, Vietnam, Timor-Leste, Laos and Nepal, with more than 6,000 gaming machines in these markets.

Every year, the group provides preventative maintenance services for more than 12,000 slot machines and gaming equipment in Asia, including for Resorts World Genting in Malaysia and various other integrated resorts.

The sales, services and marketing (SSM) division currently contributes about 60% of revenue, while technical support and management (TSM) makes up the remaining 40%. The higher-margin TSM business, however, accounts for 60% of the group’s earnings, with the remaining 40% from SSM.

RGB plans to replicate its successful Asian business model in South America, and intends to become a popular and reputable player there, says Chuah.

“Basically, we will supply machines to them, they give us space, and we share the profits. Our main focus there is concession programmes,” he says.

Chuah adds that many existing gaming machines in South America are more than 10 years old. Hence, there is a huge potential for RGB to replace underperforming machines.

“If you upgrade to our machines, you can increase your income significantly, and the beauty of it is that you don’t need to pay (for the machines),” he says.

Last Tuesday, RGB announced a better set of financial results for its second quarter ended June 30 (2QFY2017). Profit grew 24% year on year to RM8.64 million and revenue increased 3% y-o-y to RM59.7 million, mainly attributed to variation in product mix and one-off sales of certain products.

For 1HFY2017, RGB reported a net profit of RM14.8 million on revenue of RM97.4 million.

“Hopefully, next year, we will start to see some numbers coming in. We will then need another few years before we see significant contributions from South America,” says Chuah.

Year to date, RGB’s shares remained unchanged at 28 sen last Wednesday, giving it a market capitalisation of RM374 million.