Friday 29 Mar 2024
By
main news image

This article first appeared in The Edge Malaysia Weekly on September 24, 2018 - September 30, 2018

PENANG-based electronic gaming machines supplier RGB International Bhd plans to spin off its technical support and management (TSM) division and list it on the Hong Kong Exchanges and Clearing Ltd (HKEx) next year.

According to managing director and substantial shareholder Datuk Chuah Kim Seah, the company requires more capital to expand its concession business — in terms of location as well as number of outlets and gaming machines.

“We have discussed this during the board meeting. The board has given me permission to appoint a sponsor to undertake a spin-off listing in Hong Kong. We are currently looking at some quotations prepared by our (potential) sponsors and merchant bankers,” he tells The Edge in an interview in Cambodia.

While Chuah declined to share additional details on the initial public offering, he notes that RGB will maintain a controlling stake in the TSM business unit.

“I would not say this is a big IPO, but we are looking at the Main Board, definitely not the Second Board … GEM (growth enterprise market),” he stresses.

Chuah estimates that the overseas listing should materialise by the second half of 2019. “Once we appoint the sponsor, we hope to get it done within eight to nine months.”

RGB is 29.11% owned by the 65-year-old Chuah, who has been involved in the gaming and amusement industry for more than 30 years. His younger brother, Kim Chiew, is deputy chief operating officer with a 2.06% direct stake.

The established gaming products supplier 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.

Chuah highlights that the spin-off listing would enable RGB to expand its business into other countries outside Asia, such as South America and the Caribbean.

“This is part of our geographical expansion strategy to move our machines around for longer and to get more income streams,” he explains.

 

Higher valuations

When asked why RGB chose Hong Kong for the listing, Chuah says HKEx is an international listing platform with a large base of professional investors offering issuers business expansion opportunities. Moreover, most HKEx-listed firms enjoy superior IPO pricing and stock valuations.

“Hong Kong is the capital market where exciting things happen. The price-earnings ratio is much higher. In Malaysia, RGB is being valued at 12 times. But I was told that in Hong Kong, they are willing to give us 15 to 16 times, or even more. It (the spin-off listing) is good for our shareholders,” he says.

A home-grown integrated services provider, RGB primarily focuses on the manufacturing and distribution of gaming machines and casino equipment under its sales, services and marketing (SSM) division. The key suppliers for its third-party gaming products include Scientific Games, Aristocrat, SuzoHapp, Everi and R. Franco.

Notably, RGB also offers machine-leasing programmes and technical support management under its TSM division. Today, the group has about 40 revenue and profit-sharing concession venues across Asia with more than 6,000 gaming machines.

RGB — under the engineering services division — also provides preventive maintenance and repair services, turnkey machinery installation and system integration for more than 12,000 slot machines and gaming equipment in Asia, including for Resorts World Genting in Malaysia and various integrated resorts in the Philippines.

In the financial year ended Dec 31, 2017 (FY2017), RGB saw its revenue decline 0.5% to RM252.3 million, from RM253.5 million a year ago. Despite the slightly lower top line, the group’s net profit jumped 21% to RM30.7 million in FY2017, from RM25.3 million in FY2016.

For perspective, excluding the newly-formed engineering services division, about 60% of RGB’s group revenue is contributed by the SSM division, while TSM provides the remaining 40%. The higher-margin TSM business, however, accounts for 60% of the group’s earnings, with the remaining 40% from SSM.

On Sept 7, the Cambodian Ministry of Economy and Finance and the Ministry of Interior presented the inaugural Cambodia International Gaming Conference (CIGC) in Phnom Penh.

Organised by RGB, the CIGC focused mainly on three key areas — regulation, international standards and responsible gaming.

RGB’s major SSM customers in Cambodia include Naga World Group, Holiday Group of Casinos, Donaco International Ltd (Star Vegas Casino), Star Paradise Casino, Sakhalin Vegas Casino and Thansur Bokor Highland Resort.

As for TSM in Cambodia, RGB has 2,236 slot machines in all the 14 concession outlets in Poipet, Sihanoukville and Bavet. The group plans to add six outlets in the next three to five years to make it a total of 20.

 

Exorcising the Cambodian nightmare

The mention of RGB and Cambodia in the same sentence may still send shivers down investors’ spine. RGB had a disastrous foray into Cambodia, which dragged it into massive losses at one point.

In 2009, the Cambodian government prohibited sports betting and electronic gaming machines in entertainment clubs, resulting in RGB facing an immediate loss of income from about 2,000 to 3,000 slot machines stationed around the country.

Chuah recalls that Cambodians were previously permitted to play the slot machines located in the nation’s casinos. However, due to complaints of violence related to gambling debts and widespread gambling problems, slot machines were banned in 2009. “The disaster as such was unpredictable and unavoidable. The Cambodian government totally banned the playing of slot machines, which left us to face a sudden shut-down of slot operations in Cambodia.”

He explains that the Cambodian market had been very exciting before, so much so that RGB had 60 concession outlets there. By end-2008, there were too many players in Cambodia and Chuah took steps to mitigate the impact by trimming RGB’s operations. However, the ruling came too fast and caught him by surprise.

“Fortunately, with our regional presence, we were able to move all these 3,000 mostly brand-new and top-grade slot machines out of Cambodia. This experience made us stronger to face any challenges and obstacles in the future. It also instilled more confidence in us,” he says.

Going forward, says Chuah, RGB sees exciting opportunities in the Cambodian gaming scene and the group plans to intensify its presence there.

“We are carrying two prominent brands, namely Scientific Games and Aristocrat. We enjoy a good working relationship with them. Together, we have plenty to do in Cambodia,” he says.

At the same time, RGB is also bringing in new facilities and accessories that would allow casino operators to get higher revenue.

“Knowing the Cambodian market so well, we will capture areas with future potential. If the casino is running an online operation overseas, there will be no future for us to do a concession business with them, but we wouldn’t mind giving them outright supply,” he explains.

Chuah reveals that RGB will be allocating a capital expenditure of RM48 million for the placement of new machines, games and system in existing and new TSM outlets in all the countries it operates in.

“RGB has a well-planned marketing strategy. We could provide a one-stop complete solution. We are a considerable dynamic force in Cambodia, especially in Poipet, Sihanoukville and Bavet,” he says.

 

Save by subscribing to us for your print and/or digital copy.

P/S: The Edge is also available on Apple's AppStore and Androids' Google Play.

      Print
      Text Size
      Share