RGB International Bhd’s Strong Earnings Amid Underlying Risks: Assessing the Sustainability of Profitability and Shareholder Returns

In the volatile landscape of the hospitality sector, RGB International Bhd (KLSE: RGB) has emerged as a standout performer, driven by a robust Return on Capital Employed (ROCE) of 17% as of March 2025—well above the 8.1% industry average [1]. This metric underscores the company’s ability to generate pre-tax income relative to its capital base, a critical indicator of operational efficiency. Over the past five years, RGB has reinvested capital effectively, achieving a 110% total return for investors [1]. However, recent quarterly results and shareholder returns reveal a more nuanced picture, raising questions about the sustainability of its growth amid external headwinds.

Profitability: A Tale of Two Halves

RGB’s 2025 annual revenue surged 24.53% to RM947.38 million, reflecting its resilience in a competitive market [4]. This growth, however, masks a sharp decline in Q3 2025 performance, where revenue fell 4.7% year-on-year to RM94.9 million, accompanied by a 26% drop in net income to RM14.0 million [5]. The profit margin contracted to 15% from 19% in Q3 2024, attributed to lower product sales, adverse weather conditions, and the temporary closure of venues in Cambodia’s Poipet region [2]. These factors highlight the company’s exposure to external shocks, particularly in its international operations.

While the gross profit of RM109.0 million for the year suggests operational strength [4], the volatility in quarterly results indicates inconsistent cash flow generation. For instance, the first-half 2025 net income of RM26.41 million—down 36% from RM41.04 million in the same period in 2024—underscores the fragility of its earnings model [2]. Investors must weigh whether these challenges are cyclical or indicative of structural vulnerabilities in RGB’s business mix.

Shareholder Returns: High Yield, High Volatility

RGB’s dividend strategy has historically prioritized shareholder returns, with an annual yield of 12.08% as of September 2025 [6]. The recent second interim dividend of RM0.004 per share, payable on 16 October 2025, aligns with this approach [3]. However, the reduction in Q2 2025 earnings per share (EPS) to RM0.009 from RM0.012 in Q2 2024 [1] signals a potential strain on dividend sustainability. A declining EPS, coupled with a 35% increase in capital employed over five years [3], raises concerns about whether the company can maintain its payout ratio without compromising reinvestment in growth.

The debt-to-equity ratio of 1.87% [3] provides a buffer, but the company’s reliance on consistent cash flows to fund dividends remains a risk. For example, the Q3 2025 net income decline forced a reduction in the interim dividend, illustrating the vulnerability of its payout to short-term earnings fluctuations.

Strategic Considerations and Outlook

RGB’s strong ROCE and revenue growth position it as a compelling long-term investment, particularly in a sector where capital efficiency is rare. Its ability to reinvest capital at high returns—evidenced by the 17% ROCE—suggests a durable competitive advantage [1]. However, the company’s exposure to external factors such as geopolitical instability in Cambodia and weather-related disruptions necessitates a cautious approach.

For shareholders, the key question is whether RGB can diversify its revenue streams to mitigate these risks. The recent focus on quarterly dividends [6] indicates a commitment to rewarding investors, but this must be balanced against the need to retain earnings for strategic initiatives. A diversified portfolio of assets, coupled with prudent cost management, could enhance resilience.

Conclusion

RGB International Bhd’s financial performance in 2025 demonstrates a blend of strength and vulnerability. While its ROCE and revenue growth outpace industry peers, the volatility in quarterly earnings and shareholder returns highlights the need for careful risk management. Investors seeking high yields must assess whether the company’s current dividend strategy is sustainable in the face of operational headwinds. For now, RGB remains a high-conviction play, but its long-term success will depend on its ability to adapt to a dynamic market environment.

Source:
[1] The Return Trends At RGB International Bhd (KLSE:RGB) [https://finance.yahoo.com/news/return-trends-rgb-international-bhd-02560997.html]
[2] RGB International net profit down 36% in 1H25 as revenue ... [https://agbrief.com/news/malaysia/28/08/2025/rgb-international-net-profit-down-36-in-1h25-as-revenue-halves/]
[3] RGB International Bhd. (0037.KL) - Yahoo Finance [https://nz.finance.yahoo.com/quote/0037.KL/key-statistics/]
[4] RGB International Bhd Revenue 2025 [https://eulerpool.com/en/stock/RGB-International-Bhd-Stock-MYQ0037OO000/Revenue]
[5] RGB International Bhd Second Quarter 2025 Earnings: EPS [https://www.webull.com/news/13421770276570112]
[6] RGB International Bhd. Dividend Information - KLSE [https://stockanalysis.com/quote/klse/RGB/dividend/]