This article first appeared in The Edge Financial Daily on October 17, 2019

Revenue Group Bhd
(Oct 16, RM1.61)
Maintain buy with a lower target price of RM1.95: From our recent meeting, we gathered that Revenue Group Bhd’s outlook remains encouraging with more positive developments ahead. We met management for in-depth understanding of fiscal year 2019 (FY19) performance and what lies beyond. Overall, we are excited about its outlook with more positive developments ahead mitigating any minor setbacks.

In FY19, it sold 22,000 (FY18: 4,900) electronic data capture (EDC) to two anchor banks while EDC under management surged to 33,500 (FY18: 19,200). These have propelled EDC’s revenue by 123% year-on-year (y-o-y) to RM35 million. However, EDC’s blended gross profit (GP) margin shrank by 11 points y-o-y to 41% mainly due to higher contribution of lower margin EDC sales (32% versus rental’s 56%). For FY20, we foresee sustained strong growth as banks will deploy EDC aggressively to facilitate e-payments towards Bank Negara Malaysia’s (BNM) target of 25 EDC per thousand persons in 2020. Furthermore, majority of the 609,000 EDC (as of Aug 19) in the market are based on Payment Card Industry (PCI) standard 3.x which will expire in 2020 and are mandatory to be replaced with PCI 5.0 security.

For FY19, total transactional value (TV) saw a slower expansion of 15% y-o-y (FY18: 68%) to RM1.3 billion yet Revenue managed to inch up a merchant discount rate (MDR) by 10 basis points y-o-y to 1.6% on the back of better economies of scale. As a result, electronic transaction processing (ETP) revenue grew 20% y-o-y to RM20 million. It explained the lower total TV growth rate was due to: i) mild gain of tourist arrivals, especially from China; and ii) flattish online transaction value. Going forward, offline TV is projected to surge on the back of: a) rapid EDC rollout elevating touchpoints in marketplace; b) higher tourist arrivals in conjunction of Visit Malaysia 2020; c) Budget 2020 stimulus; and d) more partnerships such as the collaboration to enable Singapore’s NETS cardholders to shop in Giant and Guardian outlets in Malaysia. Similarly, online TV is expected to grow leveraging on: i) proliferation of e-commerce; ii) its penetration into Lazada with gradual volume increase; and iii) more tie-ups such the integration of Touch ‘n Go eWallet on Alibaba-owned Taobao and Tmall.

Although contribution was small at 8%, solutions and services (S&S) grew strongly by 52% y-o-y to reach RM4.7 million and GP margin sustained above 60% in FY19. Both Buymall and Anypay contributed about RM1 million to the top line. We expect S&S to sustain growth momentum as Revenue put more emphasis in creating supporting services or ecosystem surrounding EDC and ETP segments.

We adjusted our assumptions based on latest info and particularly total TV. In turn, FY20-FY21 core net profits were lowered by 11% and 1%, respectively.

We reiterate “buy” on the back of lower fair value of RM1.95 based on sum of parts valuation, implying an upside potential of 20%. Transfer to main market listing may not be Revenue’s main focus now although it is technically qualified. Nonetheless, we like the company as it is a rare proxy to the robust domestic e-payment industry which is undergoing multi-year of secular growth on the back of: i) robust growth in EDC terminals; ii) regulatory push to drive e-payment adoption; iii) riding on e-wallet trend; and iv) beneficiary of China cross-border e-commerce trend. — Hong Leong Investment Bank Research, Oct 16