• We are optimistic with GHL Systems Berhad (GHLSYS) as we expect it to record higher transaction payment volume (TPV) benefitting from the initiatives of e-Madani and the increasing foreign spending in Malaysia through tourism activities.

• TPV growth will also be supported by the launch of Mastercard Click to Pay which will facilitate faster online payment transactions and stimulate increased spending frequency.

• However, we are also concern on its thinning profit margin amidst the increasing adoption for e-payment methods by consumers, resulting in less favorable merchant mix. Hence, we cut our earnings forecast for FY23F/FY24F/FY25F by 4%/2%/8% respectively as we impute lower margin assumption.

• We have a TRADING BUY recommendation on GHLSYS with a new TP of RM0.79 based on 1-SD below 5-year average PER of 29.1x pegged at FY24F EPS of 2.7sen. Given its strong TPV growth, we believe recent stock price weakness presents a good trading opportunity in the stock.

To Record a Strong Finishing for 2023

We met GHL Systems Berhad (GHLSYS) recently, feeling reassured of its near-term prospects, with guidance of higher transaction payment volume (TPV) in 4QFY23, to be driven by: (i) surge in e-wallet spending from e-Madani initiative, approximately amounted to RM1bn and (ii) increasing foreign spending in Malaysia due to the introduction of a 30-day visa-free entry for visitors from China and India, starting 1st Dec 2023. With an anticipated TPV of approximately RM7bn to RM8bn for the quarter, this could potentially set another record high of around RM30bn in total TPV for the year. We anticipate this trend to continue, supported by ongoing government initiatives promoting cashless transactions and inbound tourism activities.

Mastercard Click to Pay – A New Experience

GHL Systems Berhad recently introduced Mastercard Click to Pay for 2,000 of its e-commerce merchants. This system offers quick access to preferred cards before checkout, enhancing conversion rates and ensuring secure payments. While adhering to the highest industry standards, it seamlessly integrates across card networks and emulates the Chip and Pin technology for the e-commerce domain. Beyond security, Click to Pay streamlines checkout by eliminating manual entry of card details or password recall. Consumers can use a single protected profile for all cards, thus removing the hassle of overseeing numerous accounts. This feature is accessible across a range of devices, including smartphones, tablets, and computers.

Minimal Earnings Impact to GHLSYS

We applaud GHLSYS for this initiative, though we think that it will have a trivial impact on earnings at this juncture, as it primarily serves to shorten the payment process for consumers. However, in the long run, we believe that by expediting and simplifying the checkout process, it could indirectly lead to an increase in spending frequency, ultimately contributing to a higher revenue for GHLSYS.

Changes to Earnings Forecast

While having a neutral stance regarding Click to Pay, we are trimming down our earnings forecast for FY23F/FY24F/FY25F by 4%/2%/8% respectively. These adjustments stem from lower margin assumption amidst its weakening gross profit margin. Notably, the gross profit margin is experiencing a downtrend while TPV is on uptrend (refer to Chart 1), and the divergence was due to a less favorable merchant mix. This trend may persist, as data from BNM suggests a decline in credit card transactions, with consumers increasingly opting for e-payment methods (see Chart 2). Given GHLYSYS's higher merchant discount rate (MDR) for credit card, we believe this will negatively impact the overall margin, however to be partially offset by higher volume within the eGHL segment.

Bumpy Roads Ahead

Though we hold a bullish near-term outlook, we anticipate a more challenging path for GHLSYS in the long run as obstacles and challenges emerge. These include: (i) intensifying competition from other market players, particularly DuitNow that is gaining more traction, (ii) increasing trend of merchants having official stores via prominent platforms outside GHLSYS's clientele, (iii) potential shifts in consumer purchasing preferences, exacerbating the less favorable merchant mix, and (iv) potential inflationary pressures arising from SRI implementation, which could suppress consumer spending.

TRADING BUY with a TP of RM0.79

We call a TRADING BUY for GHLSYS while adjusting the target price lower to RM0.79 (from RM1.00) as we rolled over our valuation to FY24. Our current TP suggests a PER of 29.1x (1-SD below the mean of 5-year average historical forward PER) and FY24F EPS of 2.7sen. We favor GHLSYS due to its extensive merchant networks and diverse range of payment solutions and value-added services tailored to various merchant needs, hence potentially generating additional revenue streams. Given its strong TPV growth, we believe recent stock price weakness presents a good trading opportunity in the stock.

Source: BIMB Securities Research - 13 Feb 2024