• 1Q19 core earnings fell 3.7% yoy to RM6.9m despite improved revenue from all segments as earnings were dragged by higher net opex and depreciation charged during the quarter.

• On qoq, core earnings grew 5.3% largely due to higher revenue contribution from shared services (+21%) and TPA (+3%).

• Overall, core earnings trailed ours and consensus’ estimates at 16% and 19% respectively. No change to earnings for jow as we expect growing TPA transaction volumes ahead.

• Maintain BUY at DCF-derived TP of RM2.00 (WACC: 7.9%, g: 3%). We remain positive on GHL in view of the higher transaction volume for debit/credit/e-wallet providing structural earnings growth for the company in a long term.

Earnings dragged by higher net opex and depreciation

1Q19 core earnings fell 3.7% yoy to RM6.9m despite 45% increase in revenue from all market segments (Malaysia: +39%, Thailand: 43%, Philippines: +121%). The strong revenue was offset by higher net opex attributable from increase in administrative and investment expenses for its regional expansion. Earnings were further dragged by higher depreciation charge possibly due to higher number of point-of-sales (POS) terminals installed under shared service.

Improved in shared services and TPA

On qoq basis, core earnings grew 5.3% in tandem with higher revenue. This was driven by 21% increase in shared services (c.41% of sales) in Malaysia and Thailand on higher hardware sales and rental collected. Besides, better sales performance was also supported by higher volume from transaction payment acquisition (TPA) services, up 3% (c.56% of sales). However, solutions services were down 27% due to lower sales of hardware and software in Malaysia and Thailand.

Higher investment cost

While 1Q19 revenue was inline with our forecast, core earnings trailed estimates at 16% mainly on higher-than-expected net opex following investments for regional expansions. We make no change to our earnings estimate as we continued growth in transaction volumes from TPA business from e-wallet/debit card usage trend to enhance operating leverage. Currently, there are more than 30 payment providers registered with BNM which would benefit GHL.

Maintain BUY at TP of RM2.00

We maintain our BUY call on the stock with a DCF-derived TP of RM2.00 based on WACC of 7.9% and long term growth rate of 3%. We remain positive on GHL given increasing transaction volumes for debit/credit/e-wallet which would provide structural earnings growth in the long run.

Source: BIMB Securities Research - 31 May 2019