• Overview. GHL System Berhad (GHL) 2Q22 core profit (ex-EI of RM1.1mn from the gain on disposal of investment in associate) decreased by 42% YoY and 6% QoQ to RM5mn despite reporting higher revenue no thanks to lower gross profit margin from its main business - TPA following a change in merchant and product mix.

• Key Highlight: While the contribution from shared and solutions services segment in 2Q22 declined by 8% YoY and 47% YoY, TPA segment surged by 27% YoY which supported growth in revenue which expanded by 9% YoY to RM101mn on the back of higher transaction processing value (TPV) for both the e-pay and e-payment services.

• Against Estimates: Below. Despite reporting an improvement in 1H22’s revenue, GHL’s core profit fell 28% to RM10.4mn dragged by lower gross profit margin. Overall, GHL’s 1H22 core profit trailed our and consensus’ estimates or at 40% and 31% of full year estimates respectively.

• Earnings Revision. We cut our 2022-2024 earnings forecast between 5%-11% as we lower our gross profit assumption on TPA business though no change is made to revenue forecast.

• Outlook. Though we believe the growing adoption of cashless payment globally to benefit GHL in the long term, we foresee a deterioration in gross profit margin following various payment types (debit/credit/e-wallet), product and merchant mix, as well as intense competition with other payment providers. This is our main concern where it could hurt earnings in the short term.

• Our Call. Downgrade our call to a HOLD from a BUY at a new lower TP of RM1.15 (from RM1.30) as we rolled forward our valuation to 2023. We derive our TP based on a 46x PER, a 10% discount to GHL’s 5-year average PER of 51x, to 2023 EPS of 2.5 sen.

Source: BIMB Securities Research - 26 Aug 2022