• 3Q18 core earnings surged 40% yoy and 41% qoq to RM7m due to better sales across all business operations.

• Overall, 9M18 core earnings trailed ours and consensus estimates making up at 56% and 58% respectively.

• We cut FY18-20F earnings between 36-38% on higher net opex assumptions in tandem with the increase in payment terminals especially following the acquisition of Paysys.

• Maintain HOLD at a lower DCF-derived TP of RM1.60 (WACC: 7.9%, terminal growth rate: 3%). Accumulate on dips.

Outstanding growth from Thailand ops

3Q18’s core earnings surged 40% yoy to RM7m in tandem with higher revenue driven by Malaysia ops (represents c.73% of total revenue). Meanwhile, Thailand ops showed an outstanding growth in total sales which increased by over 100% due to strong hardware and software sales to the banks and higher transactional fees under TPA business.

Improved in qoq mainly from shared services

On qoq, core earnings grew 41% after the shared services business grew 95% to RM37m as a result of strong payment terminal sales in Thailand and higher rental revenue from the new subsidiary, Paysys.

Lower e-pay revenue dragged M’sia ops

9M18 core earnings increased 7% to RM17m supported by the strong growth business ops in Thailand and the Philippines under hardware and software sales. However, Malaysia ops slipped 2% due to lower e pay revenue as market competition picks up. Overall, core earnings trailed ours and consensus forecast at 56% and 58% respectively.

Prospects abound

We cut our FY18-20F earnings forecast between 36-38% as we raised our net opex in tandem with higher payment terminals and opex following acquisition of Paysys. Despite its main challenge to increase transaction volume per terminal, we remain positive over its long term business prospects. We believe various agreements inked with Mastercard, Visa and UnionPay for e-payment services would enable GHL to capture the market better.

HOLD at a TP of RM1.60 (from RM1.70)

We reiterate our HOLD call on the stock at lower DCF-derived TP of RM1.60 (WACC: 7.9%, terminal growth rate: 3%). Our valuation implies FY18F PE of 39x before easing to 34x in FY19F. We believe this is fair given supports from all the government under GHL’s businesses towards cashless society that eventually would benefit the company in the long term.

Source: BIMB Securities Research - 23 Nov 2018