• Maintain SELL (TP: RM0.79). In the 1QFY24, GHL Systems Berhad (GHLSys) announced a commendable +18% YoY increase in revenue, primarily propelled by the Payment Services segment, which remains the leading contributor with a +17.1% YoY growth. The broadening acceptance of digital payment solutions facilitated higher transaction payment value (TPV), reaching RM8.72bn for the quarter. However, despite these positive developments, the group reported a lower PATAMI of RM4.7mn for the quarter, constituting only 15% of both our and street estimates. Therefore, we maintain our SELL recommendation for GHLSys with a target price of RM0.79, derived from 1-SD below 5-year average PER of 29x, applied to the FY24F EPS of 2.7sen.

• Key highlights. GHLSys saw its revenue surged by +18% YoY in 1QFY24 to RM122.6mn, up from RM104mn recorded in 1QFY23. Despite this growth, the group’s bottom-line fell to RM4.7mn, marking a -29.6% drop YoY, due to the escalating operating expenses from continuous investment by the group in growing its merchant base, IT infrastructure and human capital. Nonetheless, the group’s balance sheet remains healthy with a net cash position. Aside to that, on a QoQ basis, revenue increased by +6.3%, but core profit posted a decline of -20.3%. The decline was mainly attributed to higher sales of EDC hardware in 4QFY23 in the Shared Services revenue, a factor that was not present in 1QFY24.

• Earnings Forecast. We make no changes to our earnings forecast pending investor’s briefing.

• Outlook. We view that the increasing operating expenses resulting from the ongoing investment are now taking a toll and impeding GHLSys's growth. Additionally, several key risks to the business could also include: i) escalating geopolitical tensions, ii) heightened competition, and iii) potential impact of inflationary pressures on consumer spending.

Source: BIMB Securities Research - 29 May 2024