This article first appeared in The Edge Malaysia Weekly on June 26, 2023 - July 2, 2023

PENANG-based integrated gaming solutions specialist RGB International Bhd, whose stock price reached a 15-year high last week, is poised to seize on opportunities arising from the thriving integrated resorts (IRs) in the Philippines.

RGB chief operating officer (COO) Datuk Steven Lim Tow Boon highlights that many countries in Asia, including the Philippines, are trying to replicate the success stories of Macau and Singapore.

“The Macau government wants the casino operators there to invest more in non-gaming-related facilities in their IRs. And if you look at Marina Bay Sands, it is such a beautiful IR and a landmark of Singapore. Without gaming, nobody would put up these wonderful facilities,” Lim tells The Edge in an interview in George Town, Penang.

Likewise, he adds, the Philippines has been building highways and other infrastructure to cater for the country’s IRs.

“Today, many super-rich business tycoons and billionaires in the Philippines, including some real estate and land owners, want to try their hand at the IRs. They have the financial muscle, they want to compete with each other, and they want their IRs to be bigger than their competitors’.

“What it means to us is more business opportunities because, as they try to outshine each other, there will be more gaming space in their IRs, and they will be upgrading their gaming machines to the latest ones with new features,” he says.

The term “integrated resorts” typically refers to hotels that have a casino and other entertainment facilities.

Lim says as there is healthy competition among the IR operators in the Philippines, RGB foresees no shortage of business opportunities ahead.

“Over the past three years, the pandemic had killed off some of our smaller competitors. When the economy reopened, there was a huge replacement market that we could tap into, as well as the new IR opportunities that have presented themselves.

“The Philippines is one of the most attractive IR markets in the region. If everything goes well and if business conditions improve a little bit more, RGB should be able to continue to grow.”

Lim, 62, joined RGB in 1988 as a management executive focusing on sales and marketing of gaming and amusement machines. He assumed his current position in 2013 and now owns a 0.46% stake in the company.

According to him, the global gaming sector is seeing a major shift as countries transition from building pure casinos to developing IRs.

“Covid-19 has taught many countries a good lesson that we need businesses that can attract tourists. But, more importantly, once you get them to visit your country, what can you do to make them spend?

“When you have all those artificial facilities in the IRs, you could operate the casinos 24/7. Essentially, gaming is just a small part of the total investments for IR operators; yet, they need [the casino] as the bread-and-butter,” he explains. 

According to Lim, the Philippines currently has a total of 14 privately run IRs and casinos, including Solaire Resort & Casino, City of Dreams Manila, Okada Manila and Newport World Resorts. Others are Hann, D’Heights, NUSTAR, Royce, Midori, Winford, Fontana, Casino Plus, as well as Fiesta Casino at Poro Point and Fiesta Casino at Eastbay.

In a non-rated report on June 14, JP Morgan highlights that RGB has large exposure to the potential US$10 billion (RM46.8 billion) gross gaming revenue (GGR) market in the Philippines, as the group is the distributor for two main slot machine suppliers.

“New casinos and IRs have been in talks with RGB to either purchase or lease their machines, as RGB is the exclusive distributor for [Light & Wonder Inc from the US and Aristocrat Leisure Ltd from Australia]. These brands dominate 70% of the gaming machines in the Philippines,” it writes.

According to Asia-Pacific consultancy firm GCG Gaming Advisory Services, the Philippines’ GGR is estimated to grow from the current US$3.3 billion to US$10 billion by 2027.

“The Philippines enjoys a strong local market, a strong expat community — Korean, Chinese, Taiwan, Japan — and fully open international borders.

“Strong regulations, introduction of the [Philippine Inland Gaming Operator business], as well as new airports in Cebu and Clark all indicate that the Philippines will be competing with Singapore for the top GGR position over the next few years,” GCG said last November.

Over the past 12 months, the share price of Main Market-listed RGB has more than tripled from 11 sen to close at 34.5 sen last Thursday, giving it a market capitalisation of RM534.14 million.

Trading at its highest level since 2008, RGB is valued at a multiple of 29 times its trailing 12-month earnings.

After two consecutive years of net losses — RM29.07 million in the financial year ended Dec 31, 2020 (FY2020), and RM10.42 million in FY2021 — RGB returned to the black with a net profit of RM3.82 million in FY2022.

RGB continued to report a net profit of RM10.54 million in the first quarter ended March 31, 2023 (1Q FY2023), as compared to a net loss of RM3.31 million a year ago. On an annualised basis, the group’s bottom line is on track to revisiting its pre-pandemic levels. Before the pandemic, RGB generated net profit of RM40.18 million in FY2019, RM35.44 million in FY2018, and RM30.69 million in FY2017.

RGB distributes gaming products such as slot machines and other equipment to casinos and resorts in the Philippines, which represented 73% of the group’s turnover in FY2022 revenue, followed by Malaysia, which made up the remaining 27%.

It has been a net-cash company since 2015 and has aggressively reduced its borrowings from FY2019 to FY2022, while completing its capital expenditure cycle. As at end-1QFY2023, it had no debt and its net cash position stood at RM101 million, representing 19% of its market capitalisation.

“We plan to pay 30% of our profits as dividends. In fact, we are also considering a possible special dividend to reward our shareholders as early as FY2023. However, it is important for us to continue to monitor our financial results in the next few quarters before we make any decision,” says Lim.

Last December, a fire that broke out at two of RGB’s TSM (technical support and management segment) outlets in Cambodia left most of its machines destroyed, resulting in a write-off of RM5.88 million in FY2022. “Fortunately, these property, plant and equipment were fully insured, and we expect a full recovery from the insurance compensation in the FY2023. With this compensation, we could refresh our machines there,” says Lim.

RGB’s major shareholder and managing director is Datuk Seri Chuah Kim Seah, who controls a direct stake of 29.71% in the company. The 70-year-old gaming industry veteran also has a 0.18% deemed interest through his wife, Datin Seri Tan Soon Kim, and their son Chuah Eng Meng.

Its 2022 annual report shows that its top 30 largest shareholders include RGB senior vice-president Mazlan Ismail, RGB deputy COO Datuk Chuah Kim Chiew (who is Kim Seah’s brother), JP Morgan Securities Plc, KAF, Great Eastern Life Assurance (M) Bhd and Phillip Capital Management Sdn Bhd.

RGB operates two core businesses: distributing gaming machines and casino equipment under its sales, support and marketing (SSM) division; and offering machine concessions and machine-leasing programmes under its TSM division.

The TSM segment covers 46 revenue and profit-sharing concession venues across Asia — including the Philippines, Cambodia, Vietnam, Laos, Nepal and Timor Leste — with about 5,000 gaming machines.

Aside from putting a dent in RGB’s business, the pandemic has also derailed its plan to spin off the TSM division for a listing in Hong Kong.

“About five years ago, we were exploring the spin-off listing of our TSM business. The idea was to raise money to expand our concession businesses so that we could participate in bigger projects,” Lim says.

“But, on a positive note, we were fortunate not to have taken on these big projects before and during the pandemic. Otherwise, we would have been badly hit. So, if you asked me today, are we still pursuing the spin-off listing? Yes, we keep our options open, but it is no longer our top priority.”

Although RGB is anticipated to secure some big TSM projects in the coming years, he believes a spin-off listing is not the only option, as long as the company can continue to raise funds internally or through bank borrowings. 

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