RGB: Earnings Miss Expectations on Softer Sales, BUY Rating Maintained Despite Lower Target Price

PhillipCapital’s latest research report reveals that the company’s 6M25 core profit after tax and minority interests (PATAMI) of RM25.4 million significantly underperformed expectations, falling short of both the firm’s and consensus estimates by 23% and 26% respectively. The primary driver for this deviation was weaker-than-expected sales volume of electronic gaming machines (EGM).

Performance Review

The report highlighted several contributing factors to the softer EGM sales, including cautious customer sentiment amidst geopolitical uncertainties, developments in the Philippines surrounding midterm elections, and tighter digital gaming restrictions. Additionally, temporary border restrictions in Thailand and Cambodia disrupted certain operators’ activities. Despite these headwinds, the 6M25 EBITDA margin showed a positive improvement of 31 basis points.

For the second quarter of 2025, revenue saw a robust 29% quarter-on-quarter increase to RM95 million, buoyed by stronger EGM deliveries of approximately 700 units, bringing total 6M25 shipments to about 1,200 units, mainly from replacement demand and newly launched products. However, the 2Q25 EBITDA margin contracted by 7.1 percentage points quarter-on-quarter to 22.9%, a result of weaker operating leverage and a lower contribution from higher-margin technical support and management segments. Core net profit for the quarter, at RM12 million, was also impacted by a higher tax rate.

Outlook and Recommendation

Looking ahead, PhillipCapital characterizes 2025 as a transition year, with a projected recovery in 2026. This anticipated growth trajectory is expected to be driven by healthy replacement demand and robust replenishment opportunities, particularly from the Philippines and Cambodia markets.

The investment bank has maintained its BUY rating on the stock. However, it has revised its 2025 EPS forecast downwards by 60% to account for a lower EGM volume assumption of 2,400 units (previously 5,200 units). Forecasts for 2026-27E have also been trimmed by 4-5% after margin adjustments. The 12-month target price has been lowered slightly to RM0.70 (from a previous RM0.73), based on an unchanged target price-to-earnings (PE) multiple of 9x on 2026E EPS. The firm continues to favor the company due to its growth prospects, attractive valuation, and dividend yield. Key downside risks include lower sales volume, concentration risk, and regulatory pressures.