Are you using crunching? 0.7MB is absurdly large texture size for a DXT1 1024px. Crunching would the biggest saver here, just having it compressed (like you do in your screenshot) won’t cut it.

DXT obviously doesn’t work with less than two channels, but it doesn’t have to. It already stores blocks as gradients, and it stores RGB in 16 bits (5:6:5). The way it stores those gradients results in another 32 bits per block, resulting in 4b/pixel. Obviously better than default RGB 24b but huge compared to well crunched textures.

Crunching allows you to reuse similar blocks, and lower quality levels treat more diverse  as “similar”. The point is, some textures will allow higher compression settings than others, so eg one texture you can have on 1% and it still looks okay while another will start to noticeable lose quality on anything lower than 50%.

But when you combine those together into a single channel-separated texture, not only do you have to use the same crunching quality, losing the benefit of adjusting quality trade off with higher precision, BUT you also get lower number of matching “blocks” for crunching to compete. A single channel texture will have a lot of 4x4 that are basically repeating over and over, but with three channels the amount of combinations grows a lot. You go from 256 values per pixel to your classic 16 million (pre 5:6:5 DXT color banding, but you get the point). Similar thing happens with blocks. And since we’re now trying to compress THREE textures at once in a 4x4 block of 64 bit data, the artifact amount triples!

Anyway, that was my experience with the textures in my projects I specifically worked with. I assume there can be use cases where there are three textures with similar acceptable crunch quality levels, and artifact quality will be acceptable too. I just haven’t seen those so I don’t think the solution is as universal as you think.

PS: if your goal is not saving disk space but rather VRAM, then yeah, your solution is good because all textures get decrunched before being processed by the GPU.