Monday, April 13, 2015

RGB ... TurnAround But Still Saddle With High Debts !!!

The increasing liberalization of the region’s gaming market will boost its performance of gaming machine supplier which posted an impressive set of results for the financial year ended Dec 31 2014.

It plans to explore new markets in SEA as well as India and Nepal, given their openness to this sector.

There is an increasing trend particularly in the Philippines and Cambodia as well as Myanmar, Laos and Timor Leste to liberalise.

For Philippines, it has carved out an entertainment city with four major integrated resorts. And RGB, representing reputable casino equipment brands, is well positioned to capitalize on the regions’ rising gaming liberalization.

It also plans to venture into Timor Leste and North Asia such as India and Nepal.

New machines for existing and new TSM’s and a few joint ventures will be rolled out in 2015. Plans are afoot to expand its production facilities by end 2015.

It is also expanding its technical and replacement parts services for both gaming machines and table games of all brands.

It will supply Bingo machines to various markets in the region.

A tie up with a business partner, which provides turnkey technical support and parts, is a possibility as it can help to enhances value for customers and the company. This could be in the form of a small stake in a gaming operation.

In FY2014, it reported a 178% jump in net profit to rm18.53 million from rm6.65 million in the previous year. Revenue grew 54% to rm214.65 million from rm140 million.

It attributed to higher sales of gaming machines and table game products in all its regional markets.

Its earnings growth will be underpinned by the performance of the group’s technical support and management division. The division has 38 gaming concessions which offer a higher earnings visibility.

At the same time, its earnings will be lifted by low hanging fruits such as interest savings and the shutdown of its Macau operations. It was gathered that its management is engaging bankers to restructure a legacy debt which carries high interest rate. Management has decided to pull out of Macau.

Prior to 2013, RGB had borrowings of more than RM200mil, mainly in the form of commercial papers (CPs) and medium-term notes (MTNs). The amount was pared down gradually, and in 2013 the CPS and MTNs was refinanced for RM73mil. Its latest accounts showed total borrowings stood at RM66.9mil.

To preserve cash flow it will enter into an agreement in which the vendor partner bears the capex to operate new concession halls, RGB aims to achieve organic growth from existing outlets, managing new concessions, entering Greenfield markets and the deployment of new games.

It has a comparatively defensive business model … in contrast, casino operations are exposed to the volatile VIP segment. Its TSM business is relatively resilient due to the high stickiness of slot machines, given the smaller bets compared with gaming tables.

It is this spared any effect from the weak regional gaming backdrop, due to the rapid deceleration of gaming revenue growth in Macau.

Apart from the usual slot machines it has teamed up with AB Leisure which has introduced Bingo machines to its Philippines outlets.

Over the next two years from April 2015, it aims to roll out 2000 Bingo machines which estimate will contribute rm2 million to its bottom line.

It has embarked on two main businesses …. The manufacture and distribution of slot machines under its SSM division and the management of slot machine concessions under its TSM division.

The TSM division was the main contributor to the group’s earnings in FY2014, making up 81.4% of the group’s earnings.

As at 3QFy2014, it had some 6000 machines operating in 38 outlets in the Philippines and Indochina. RGB signs a five year concession with the hall operator, with a renewal option for five years.

On the SSM division, it has targeted SSM sales from both replacement and new market for 2015 will be much more than in 2014.

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