INVESTMENT MERIT

GHLSYS announced its strongest performance to date with FY16 earnings of RM18.1m (+75.2% YoY). Beyond the recordbreaking performance, the Group has consistently produced double-digit growth in earnings since FY13. GHLSYS’ strong position as an end-to-end payment services provider might open doors for opportunities to further unlock its value. Therefore, we ascribe a Fair Value of RM1.28 on GHLSYS based on 33.1x FY17E PER with a NOT RATED call.

Four years of double-digit growth. GHLSYS has registered a recordbreaking result for FY16 with revenue of RM245.9m (+16.3% YoY), which has brought the net earnings to RM18.1m (+75.2% YoY). All three business segments; Shared Services, Solution Services and Transaction Payment Acquisition (TPA), reported double-digit growth in gross revenue of 12.7%, 23.6% and 27.7%, respectively. On top of that, all geographical markets also registered a positive growth except for Australian market, which saw an insignificant drop in its revenue. From FY13 to FY16, GHLSYS’ revenue and net profit have grown at phenomenal CAGR of 56.6% and 51.0%, respectively.

Malaysia’s market remains competitive, especially in TPA segment, as banks are gearing up to achieve the merchant acquisition targets imposed by Bank Negara (cumulative of 330k in 2016 and 430k in 2017). The competitive market has resulted in lower growth for the Group Malaysia’s TPA business in FY16. Moving forward, we expect margin to compress further due to lower merchant discount rate (MDR) as competition intensifies. However, we expect higher revenue from hardware and software sales to balance out GHLSYS Malaysia’s top-line and provide continuous growth moving forward.

Exciting Philippines. GHLSYS just launched its TPA business in Philippines in mid-2016 and FY17 will be the first full-year contribution coming from this segment. We are excited over the potential of this underpenetrated market in the TPA segment as GHLSYS is expected to earn bigger spread of MDR in this market, i.e. 70-80bp compared to Malaysia’s 20-30bp.

Sustaining the growth. The Group has several projects/ventures in the pipeline in order to sustain its growth moving forward. Among others are, collaboration with AliPay in Thailand, which could extend to other GHLSYS’ existing markets, potential of its newly launched AirPOS (mobile point-ofsale terminal) market in Malaysia, and venturing into new markets, i.e. Vietnam and Myanmar in online payment gateway. Despite immaterial contribution to the earnings, these projects/ventures could be one of the breakthroughs for GHLSYS to sustain its astronomical growth in the future.

Growth story to continue. We project that GHLSYS will continue to spur ahead with double-digit growth rates in earnings of 39.5%/19.8% YoY, which translates to RM25.3m/RM30.3m in Net Profit for FY17/FY18. We expect the Group’s earnings to be primarily driven by the growth of its TPA business with forecast revenue growth of 13.1% YoY while supported by Shared Services in sales of software and hardware with forecast growth of 27.9% YoY. This projection of earnings translates into EPS of 3.9 sen/4.6 sen for FY17/FY18.

We are issuing a Not Rated call on GHLSYS at Fair Value of RM1.28 based on 33.1x FY17E PER representing -1SD of its 2-year average PER, as the intensifying competition in all geographical markets might erode GHLSYS’ margins. However, with several ventures in the pipeline, we keep our eyes on this counter. Any development which might lead for major breakthrough could be a re-rating cataly

Source: Kenanga Research - 28 Mar 2017