- Keep NEUTRAL with higher MYR0.92 TP from MYR0.88, c.2% upside. GHL Systems’ FY22 core earnings of MYR28.1m (-5.0% YoY) met expectations. The marginally weaker performance was dragged by margin compression in the shared services and slower solutions services, cushioned by better transaction payment acquisition (TPA) segment with an uptick in the merchant discount rate (MDR). While we like the cashless payment megatrend, the growth may be limited by the potential slowdown in retail spending and margin compression for acquirer business as a whole.
- Broadly in-line. GHLS’ FY22 results were broadly in line with our and Street’s expectations at 109.7% and 99.9% of full-year forecasts. A marginal drop in core profit YoY was due to lower margin and higher tax expenses despite the stronger revenue for group at MYR410.6m (+14.0%) and for the TPA segment (+17.4%). This was due to growing electronic payments processed and shared services segment (+12.1%), driven by stronger hardware sales that more than offset the 24.7% decrease in solution services, which were affected by lower one-off hardware sales and maintenance revenue.
- Seasonally strong 4Q. The stronger revenue of MYR113.4m (+9.6% QoQ, +19.0% YoY) lifted the core profit to MYR9.8m (+21.9% QoQ, +7.9% YoY), driven by higher electronic data capture terminal sales and a stronger MDR trend from higher offline merchant for the TPA segment. Better performances from all countries where GHLS operates were observed following the relaxation of travel restrictions, reopening of more retail outlets, and increase in tourism activities. Notably, GPM for TPA improved slightly to 0.255% vs 0.203% in 3Q22 and 0.23% in 4Q21, while GPM for e-pay continued to inch lower to 0.815%, compared to 0.87% in 4Q21 but uptick vs 3Q22 of 0.78% due to changes in merchant as well as product mix.
- Transaction payment value (TPV) trend. 4Q22 total TPV remained on an uptrend, albeit at a slower momentum, increasing 7% YoY and 8% QoQ to MYR5.38bn, supported by stronger retail spending and higher transactions at physical merchants, on the back of an improved mobility. GHLS’ acceptance points for TPA contracted 5% QoQ to 121,900 while e-pay inched up to 54,900 (+4% QoQ).
- Forecasts and ratings. Our FY23-24F earnings are marginally higher by 3.9% and 0.5% following a minor tweak in growth assumptions. Our TP is now raised to MYR0.92 (from MYR0.88), based on unchanged 31x 2023F P/E, in line with its 5-year mean. Our TP is inclusive of a 6% ESG premium based on our proprietary methodology. We remain encouraged by the sustainable TPV uptrend and the increasing trend in the cashless payment space, yet we are cognisant on the margin compression for acquirer business as a whole.
- Downside/upside risks to our call include weaker-/stronger-than-expected TPVs and margins, and electronic data capture terminal sales.
Source: RHB Research - 24 Feb 2023