• 4Q18 core earnings grew only at 3% yoy despite higher revenue. This was due to higher net opex on the back of its expansion into Cambodia and Indonesia.

• Qoq, earnings fell 8% mainly driven by lower terminal sales in Thailand. Besides, M’sia’s TPA contribution also fell on lower transaction value processed for e-pay.

• Overall, 2018 core earnings were inline with ours and consensus’ estimates making up at 99% and 94% respectively.

• Despite our positive outlook over its regional expansion plan, rising competition amongst the banks and other payment providers could put margin under pressure.

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

Dragged by higher net opex

4Q18 core earnings grew only by 3% yoy to RM6.6m despite 33% revenue growth. We believe the revenue surge was offset by higher net opex on the back of its expansion into regional markets (ie. Cambodia and Indonesia).

Lower contribution from M’sia and Thailand ops

On qoq basis, core earnings fell 8% in tandem with the lower revenue. Terminal sales for Thailand was weaker while M’sia’s TPA revenue also fell qoq as transaction value for e-pay relating to telco prepaid top-ups declined.

Supported by shared services

2018 core earnings rose 6% to RM23.6m and were broadly inline with ours and consensus’ estimates at 99% and 94% respectively. The growth was driven by shared services across the region on the back of higher rental and maintenance revenue as well as hardware sales.

Maintain HOLD at RM1.60 TP

Maintain HOLD call at DCF-derived TP of RM1.60 (WACC: 7.9%, g: 3%) that values the stock at FY19/20F PE of 39x/34x. We are positive over its regional expansion plans as it provides sustainable earnings growth in the long term. However, near term earnings could be impacted by start-up costs while rising competition amongst the banks and other e-payment providers are likely to put margins for the TPA business under pressure. Accumulate on dips.

Source: BIMB Securities Research - 28 Feb 2019