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.
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