GHL System Berhad (GHL) 1Q23’s core profit of RM6.7mn was in line with our and consensus’ estimates, accounting 24% and 20% of full year forecast, respectively. GHL’s 1Q23 core profit rose by 26% YoY driven by strong TPA business – higher transaction payment value, subsequent to the reopening of retail outlets, an increase in interstate travels, and tourism activities. Core profit declined by 31% QoQ however dragged by lower hardware EDC sales and rental revenue. We remain sanguine on GHL’s long-term outlook to be driven by the increase in cashless transaction volume globally. However, we foresee downside risks from higher interest rates and inflationary environment that could put pressure on consumer spending. Maintain a BUY call on GHL at new TP RM1.00 (from RM1.15). Our valuation implies a lower PER of 40x (0.5-SD below mean of 5-year average historical forward PER) (Chart 1) pegged to 2023F EPS of 2.5 sen.

• Against estimate: Inline. GHL 1Q23’s core profit was in line with our and consensus estimates, accounting 24% and 20% of full year forecast, respectively.

• QoQ. Revenue fell by 8% QoQ dragged by shared services (-26% QoQ) which accounted 27% of revenue due to lower hardware EDC sales and rental revenue from Malaysia operations. Meanwhile, EBITDA margin contracted by 3.6 ppts to 14.3% in 1Q23 from 17.9% in 4Q22 due to changes in revenue and segment mix across all geographical markets. Consequently, core profit plunged by 31% QoQ.

• YoY. 1Q23’s revenue grew by 12% YoY primarily due to higher contribution from the TPA segment (+19% YoY) subsequent to the reopening of retail outlets, an increase in interstate travels, and tourism activities which led to higher transaction payment value during the quarter. Note that, GHL e-payment revenue outgrew e-pay in 1Q23 and rose as the largest contributor for TPA segment for the first time, thanks to higher blended MDR (gross revenue/transaction value) (Table 4) due to favourable payment and merchant mix types. This pushed GHL’s 1Q23 core profit higher or by +26% YoY to RM6.7mn from RM5.4mn in 1Q22.

• Outlook. We remain sanguine on GHL’s long term outlook thanks to the proliferation in cashless transaction volume globally. However, we foresee downside risks from higher interest rates and inflationary environment that could put pressure on consumer spending.

• Our call. Maintain a BUY call on GHL at lower TP RM1.00 (from RM1.15) as our valuation implies a lower PER of 40x (0.5-SD below mean of 5-year average historical forward PER) (Chart 1) pegged to 2023F EPS of 2.5 sen.

Source: BIMB Securities Research - 1 Jun 2023