• Overview. GHL’s 1Q22 core profit fell 8% yoy and 37% qoq to RM5.4m mainly due to lower gross profit margin recorded during the quarter. Gross profit margin contracted 5.6ppt yoy and 3.6ppt qoq to 35% owing to change in product and merchant mix.

• Key highlight: TPA segment remains the biggest contributor to GHL’s revenue at 66% and grew 9% yoy on higher transaction processed value. However, shared and solutions services declined 2% yoy and 15% yoy on lower rental on EDC terminals and software sales.

• Against estimates: below. GHL’s 3M22 core profit trailed our and consensus’ estimates at 10% and 13% respectively. We slashed our 2022/2023/2024 earnings forecast by 50%/60%/64% (Table 5) as we revisit our higher-than-expected rental and sales for EDC terminals, TPA’s transaction processing value, and gross profit margin assumptions.

• Outlook. Despite the reopening of the economy is expected to provide strong TPA’s transaction processing value growth in 2022, we foresee a deteriorating gross margin following various payment types (debit/credit/e-wallet), product and merchant mix, as well as intense competition with other payment providers, would hurt its earnings in the short term.

• Our call. Downgrade our call to SELL from HOLD at a new TP of RM1.30 (from RM1.92). We pegged our valuation at +0.5 SD to GHL’s 5-year average of 57x on 2022 EPS of 2.3 sen.

Source: BIMB Securities Research - 27 May 2022