• Overview. 1Q21’s core profit grew 13% yoy to RM5.8m on marginal increase in revenue which was further lifted by lower net opex registered during the quarter. On qoq, core profit improved 10% despite decline in revenue on the back of lower net opex and depreciation.

• Key highlights. TPA business remains resilient in 1Q21 (Table 3) supported by higher transaction processing value (TPV) from both e pay (RM1.1bn, +5% yoy) and card payment services (RM5.0bn, +58% yoy) (Table 4) which offset the decline in gross profit per transaction margin. Meanwhile, shared services revenue was down 12% yoy to RM29m from RM33m due to lower rental and maintenance fees as banks retrieved terminals from merchants affected during the pandemic.

• Against estimates: Below. 1Q21’s core profit trailed ours and consensus’ estimate despite revenue being broadly inline. This was due to contraction in gross profit per transaction margin as Tier-3 and Tier- 4 offline merchants’ businesses (used to contribute higher margin) continue to struggle following stringent movement controls in Malaysia. We cut 2021/2022/2023 earnings forecast by 27%/11%/2% (Table 5) as we pared down revenue contribution from shared and solutions services. For TPA business, we maintain our strong TPV forecast but reduced merchant discount rate (MDR) as well as gross profit per transaction margin.

• Outlook. We remain positive on GHL’s long-term business prospect as we expect growing cashless payments usage amongst consumers to continue even after the end of Covid-19 pandemic as it has become the new habit for people to make payments given the convenience service. Besides, GHL has actively collaborated with new and existing partners to expand its TPA business further by offering new services which may translate into stronger TPV growth in the near term.

• Our call. Maintain BUY call with lower DCF-derived TP of RM2.00 (WACC: 9%, g: 3%). Our valuation implies 2021/2022 PE of 74x/39x.

Source: BIMB Securities Research - 27 May 2021