• Overview. GHL’s 2Q21 core profitsurged 92% yoy to RM8.7m on better contribution across overall business segment; shared services, solutions services, and transaction payment acquisition (TPA) (Table 3), coupled with lower depreciation. On qoq, core profit grew 50% despite only 7% rise in revenue. This was due to improvement in net opex to sales ratio which saw EBITDA margin expanding 2.5ppt to 21.3% from 18.8%.
• Key highlight: The transaction value processed for both e-pay and card payment services under TPA remains resilient in 2Q21 (Table 4) as users switching into online transactions given the concern on the spread of the virus. However, gross profit margin was hit due to the change in product, payment, and merchant mix.
• Against estimates: Inline. Overall, GHL’s 1H21 core profit of RM49.5m was broadly inline with ours but trailed consensus’ estimate at 47% and 41% respectively.
• Outlook. We foresee the announcement made by Malaysian National Security Council (MKN) to allow some economic activities including dine-in for fully vaccinated individuals under the National Recovery Plan (PPN) Phase 1 states as positive for GHL. We expect this would provide a boost for Malaysia's TPA transaction processing value coming from GHL’s physical merchants, and consequently would improve its gross profit margin on better product, payment, and merchant mix in coming quarters.
• Our call. We change our call to HOLD from BUY on the stock with unchanged DCF-derived TP of RM2.00 (WACC: 9%, g: 3%) given the recent rise in the share price due to positive market sentiment on easing restriction orders announcement. Our valuation implies 2021/2022 PE of 74x/39x. Accumulate on dips.

Source: BIMB Securities Research - 26 Aug 2021