• During the recent quarter's earnings season, significant developments unfolded within the IT services sub-sector. Notably, GHL Systems Bhd (GHLSYS) showcased a decent revenue growth in 4QFY23, benefiting from the resurgence of domestic economic activities as well as increased inbound tourism.

• Likewise, MYEG Services Bhd (MYEG) pleasantly surprised investors with exceptionally strong results, largely attributed to a stronger than expected contribution from its blockchain segment. We believe that this underscores the company's successful diversification strategy and its ability to capitalise on emerging opportunities within the digital landscape.

• Datasonic Group (DSONIC) also delivered improved performance in 9MFY24 against same period last year. This was primarily driven by heightened demand for smart cards and passports, resulting from the gradual reopening of international borders. We view this positively as it highlights DSONIC's exclusivity as the sole provider for passport solutions and MyKad, setting a high barrier for new entrants.

• Therefore, we uphold our OVERWEIGHT stance on IT Services sub-sector for now, awaiting additional evaluation of MYEG and DSONIC, while retaining our TRADING BUY recommendation on GHLSYS (RM0.79).

Meeting Expectation

In the previous quarter results, GHLSYS's top and bottom lines were consistent with both ours and consensus forecasts. It achieved a notable +55.7% QoQ increase in 4QFY23 core net profit, propelled by strong performance of its TPA business segment, of which benefited from both domestic and foreign spending. We anticipate that the TPA segment will remain as the primary growth driver for GHLSYS going forward, leveraging on its competitive advantages and extensive merchant networks. However, we are mindful of profit margin concerns stemming from rising operating expenses related to investments in expanding the merchant base and transitioning technology infrastructure to the cloud. Nevertheless, we perceive these investments as essential for GHLSYS in enhancing its industry positioning.

Poised for Growth as Cashless Transaction Growing

As the adoption of cashless payment methods continues to surge, driven by factors such as technological advancements, changing consumer preferences, and government initiatives promoting digitalization, GHLSYS stands to benefit significantly. The company is well-positioned to capitalize on this trend due to its expertise and extensive experience in providing payment solutions. With a robust infrastructure and a comprehensive suite of services tailored to meet the evolving needs of businesses and consumers, GHLSYS is in a prime position to capture a larger share of the expanding cashless transaction market.

Overweight on the Sector

We maintain our OVERWEIGHT view on the IT Services sub-sector for the time being, pending further assessment on MYEG and DSONIC. Concurrently, we have a TRADING BUY call on GHLSYS (RM0.79).

Source: BIMB Securities Research - 7 Mar 2024