• GHL’s 1Q17 net profit grew 28.1% qoq and 57.1% yoy to RM8.5m, making up 28.4% of our full year estimates.

• The strong growth was driven by strong performance from shared services (+62% yoy) and TPA business (+12% yoy).

• We expect the TPA business to be the main revenue driver in view of recent merchant acquiring tie up agreements.

• Maintain BUY with a DCF-derived TP of RM1.90 (WACC: 7.8%; terminal growth rate: 3%).

Better performance from shared services and TPA business

GHL posted a strong performance with 28.1% qoq and 57.1% yoy growths in 1Q17 core profits to RM8.5m. This was due to strong performances by shared services (+62% yoy) and TPA business (+12% yoy) on higher EDC rental sales and higher transaction fees earned respectively. Solutions services fell by - 2.4% yoy on lower hardware and software sales.

Malaysia the largest contributor

Malaysia operations contributed 87.9% (RM59.8m) to the total revenue of which 74.5% was from TPA services (Chart 1). It also recorded 24.6% yoy growth in 1Q17 revenue on improvement across all business segments (shared services: +102%; solutions services: +28%; and TPA: +11.4%).

Thailand TPA business seeing encouraging recovery

Thailand operations revenue improved +74.6% yoy on better performance from all business segments, particularly from the shared services segment. Its TPA business noted good recovery (+40.3% yoy) following the change in its business strategy there to record its highest revenue since 3Q15.

Philippines still going through a transition

Philippines operations saw weaker revenue, declining -6.8% yoy on lower solutions and shared services business segments. The TPA segment continues to grow steadily up 8.5% yoy.

TPA – the growth driver

We expect TPA business to remain the key growth driver going forward following several agreements such as with Global Payments, CIMB, Alipay, and AFPI (Beepcard) in Philippines.

Maintain BUY with TP of RM1.90

Maintain BUY with a DCF-derived TP of RM1.90 which assumes a WACC of 7.8% and terminal growth rate of 3%. Our TP implies a FY17F PE of 42.2x before easing to 23.8x in FY18F.

Source: BIMB Securities Research - 29 May 2017