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5 Key Insights About Revenue Group Berhad

Revenue Group Berhad is listed in the ACE Market of Bursa Stock Exchange on 18 July 2018. The company is a cashless payment solutions provider in Malaysia. Since listing, its share price has risen by 419%. Its IPO price were set at RM0.37 and currently, it is trading at RM1.92 per share at the time of writing this article.

Personally, I think that this company has great growth potential for an ACE Market listed company. It has 3 main business segments namely; 1) Electronic Data Capture (EDC) Terminals; 2) E-transaction Processing; and 3) Solutions and services.

Here are the 5 Key Insights about Revenue Group Berhad you should know before investing:

#1: RECURRING INCOME STREAM

Revenue Group’s business model is highly recurring in nature. The EDC Terminals is basically a device installed in physical stores. It can process various type of cashless payments. For example, your credit card or TnG e-Wallet.

When you use any cashless payment via these terminals, it will connect to its payment gateway platform. This platform is known as “revPay”. By processing the payment using this platform, Revenue Group earn a cut of the processing fee charged. This is what the company’s second income stream is, e-transaction processing.

This revPay is also implemented on e-commerce website like Lazada or Taobao. That’s why the more transaction going through this platform, the more income generated in this segment. As of 30 June 2020, approx. 82% of the revenue comes from these 2 segments.

RGB Segmental Revenue
Source: Company’s Annual Report

#2: GROWING E-PAYMENT TREND

Since the pandemic started in 2020, many countries are in lockdown mode. In Malaysia, we have been going through various phases of lockdown. This has resulted in people buying goods online. According to a study by Visa, there was a 63% jump in usage of contactless payment. Revenue Group is definitely in a position to benefit from this trend.

This is because Taobao and Lazada is using the company’s revPay for payment processing as well. But only for Malaysian consumers. Nevertheless, its revenue will increase when more people shop in these 2 e-commerce website.

#3: LACK OF PRICING POWER

As mentioned earlier that RGB earn a cut of the e-transaction processing fee. This is known as net merchant discount rate (“MDR”). According to the company’s MD, the profit margin from this segment will decrease over time.

It is not surprising since high MDR will deter people from using cashless payment. This is in-line with BNM in encouraging e-payment in Malaysia. It is a volume game rather than profit margin. Revenue Group has no pricing power in this segment.

As such, price war is bound to happen when new players comes in and negotiated a lower percentage cut of the net MDR. That’s why the company has to constantly find ways to grow their revenue.

One way is through partnership with e-payment companies. For example, Shopee Pay, GrabPay or TnG eWallet, etc. This will enhance their EDC Terminals’ capability. You now only need 1 terminal for various cashless payment mode.

#4: GROWTH THROUGH ACQUISITION

Another way to grow is through acquisition of related businesses. Revenue Group in the year 2019 and 2020 has been actively acquiring companies. Here’s a timeline to illustrate the acquisition taken place:

26 MARCH 2019

The company acquires 70% stake in Anypay Sdn Bhd for RM4.9 mil. Anypay is basically a one-stop bill payment services which can be integrated into its EDC terminals. As such, one can pay his phone bills via this EDC terminals.

At the same time, it also acquires 51% stake in Buymall Services Sdn Bhd for RM3.3 mil. Buymall is an online marketplace. They help you to procure your purchases from overseas e-commerce site like Taobao.

29 APRIL 2020

The company acquires 80% stake in Scanpay Sdn Bhd for RM1 mil – Currently, known as Wannapay. According to the MD, this is basically an e-Wallet arm for Revenue Group. This creates new market for the company from B2B to B2B2C.

10 AUGUST 2020

The company acquires 40% stake in Wannatalk Malaysia Sdn Bhd for RM5 mil. Wannatalk involves in the development of AI-powered services. For example, AI-powered big data mining and fraud detection software. This can enhance its existing e-payment solutions in terms of security. Thus, able to bid for more digital payment solution projects.

If you look at the big picture of these acquisitions, it basically enhances RGB’s existing business. The acquisition of Anypay, Buymall and Wannapay will create more e-transaction volumes to revPay platform. This means more revenue.

It also enhances the capability of the company’s EDC terminals. This will attract more merchants to use the company’s terminals. Again, more sales or rental income from this segment. Moving forward, I do foresee more acquisition from this company.

EDC Terminal and E-Transaction Segment
Source: Company’s Annual Report

#5: NO DIVIDEND PAYMENT

With so many acquisitions made by the company, it is not surprising that they have not declare dividend. They need the cash for more acquisition in the future. If you’re dividend investor, this company may not be your cup of tea.

Nevertheless, it seems like the management’s focus is on strengthening their recurring revenue stream. In terms of their capital allocation behaviour, I think it’s good. However, I’m skeptical with the e-Wallet arm – Wannapay acquisition.

This is because there are already so many e-Wallet players in Malaysia. The competition in this segment is intense. According to Fintechnews.my, there are 38 e-Wallet players in Malaysia as of year 2021.

Razer Pay has already announced its exit from Malaysia market recently. The competition will only get more intense from this industry.

Another concern you should take note is the tendency of Revenue Group to overpay its acquisition. Any overpayment is not a good investment. On the bright side, all its acquisition has been made with profit guarantee condition. This will mitigate the possibility of incurring losses after acquisition.

MY INSIGHTS

Overall, I think Revenue Group is a good company with decent growth potential. But the valuation seems high right now. Its current PE is at 85x. This is higher than the average PE of 79.2x among its peers, at the time of writing.

Closest PeersPE Ratio
GHL System115.0x
Visa59.6x
Mastercard60.2x
Paypal70.3x
Global Payments90.7x
Average PE79.2x
Source: Google

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Thomas Chua

Founder of Stocks Insights. Prior to this, he was as an external auditor where he perform statutory audit on listed companies from various industries. He also involved in Enterprise Risk Management exercise and Internal Control Framework Review for entities undergoing IPO in Bursa Malaysia and SGX Catalyst Board. He is also a member of ACCA.

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