GHL Systems (GHL) as a payment processor is poised for exciting growth due the urgent need for digital payment adoption among merchants which are still highly reliant on cash-based transactions. GHL has taken the initiative to act as a third-party acquirer to cater to the underserved small to micro companies which in turn accelerates rollout and expands its addressable market beyond top-tier companies. With the ASEAN Payment Connectivity initiative in place, GHL stands to benefit greatly when borders reopen as it has more than 383,600 touchpoints across ASEAN in place to facilitate cross-border transactions. Initiate with OUTPERFORM and TP of RM2.30.

Urgent need for digital payment. The importance of digital payment has never been more emphasised in the past 18 months as the pandemic plagued the lives of many people around the world. While consumers had time to familiarise with digital payment platforms, cash-based merchants saw sales plunging overnight as lockdown protocols kicked in. Therefore, many merchants are seeing an urgent need to digitalise their business and embrace digital payments as consumers are expected to continue using these platforms even as the pandemic eases.

Two-pronged approach towards growth. In addition to having the bank as an acquirer to expand its presence and increase touchpoints across ASEAN, GHL has also taken on the role as a third-party acquirer to cater for the underserved small to micro companies that are often rejected due to overly stringent bank requirements. By focusing on this two-pronged approach, GHL is able to expand its addressable market and hence expand its revenue base. More importantly, playing the role of a third-party acquirer will allow GHL to: (i) have quicker roll-out of its EDC terminal/gateway, and (ii) earn recurring income from the MDR fee received.

Cross-border transaction. As part of the ASEAN Payment Connectivity initiative, Bank Negara Malaysia has started to implement cross-border digital payment with Thailand which allow (i) Malaysian e-wallet user to scan Thai QR code and vice versa (going live by 4Q 2021) and (ii) cross-border digital transaction by referencing recipient’s mobile number (going live by 4Q 2022). This initiative will lead to a surge in digital payment volume when borders reopen and GHL is well positioned to benefit with more than 383,600 touchpoints across ASEAN.

Recovery in FY21; strong growth in FY22. We anticipate 4.3% growth in FY21 revenue to RM348.8m with a 8.4% rise in net profit to RM33.5m. We believe FY22 will be more reflective of GHL’s growth potential with the expectation of the pandemic coming to an end and the gradual resumption of cross-border travel. We estimate the group’s total processed value (TPV) to grow 50% in FY22 which translates into revenue of RM475.3m (+36%) and net profit of RM47.5m (+42%).

Initiate with OUTPERFORM and Target Price of RM2.30, based on FY22E PER of 55x (+1.5SD from 3-year mean), given its solid track record in the industry and being the only player with a strong ASEAN presence to ride the digital payment boom.

Risks to our call include: (i) Slower TPV growth, (ii) reluctance of merchants in adopting cashless transactions, (iii) downward pressure on MDR, and (iv) competition from non-listed peers and overseas peers.

Digitalising the ASEAN market

While the adoption of digital payment has already been taking place for the past few years, its importance has never been more emphasised in the last 18 months as the Covid-19 pandemic plagued the lives of people around the world. Since the beginning of 2020, governments in various countries have implemented multiple lockdowns to restrict people’s movement in an attempt to reduce the spread of the virus. This has severely impacted the daily operations of merchants which were not digitally enabled and relied heavily on cash-based transactions, causing closures of many brick-and-mortar stores.

On the consumer end, the transition from cash-based payment to digital payment was much smoother. The extra hours at home during lockdowns allowed even the Gen X demographic to familiarise with various digital payment platforms, resulting in many consumers increasingly relying on digital channels to fulfil their daily needs and wants. With the convenience that digital payments brings, many consumers in the ASEAN regions have shown interest to continue using digital payment services even after the pandemic subsides.

This has created an urgency for existing merchants to pick up pace in digitalising their business as cash-based transaction volume will very likely be on a declining trend going forward. This will also set the tone for new merchants, as being equipped with the infrastructure to accept digital payments will be one of the pre-requisites in ensuring business continuity amidst situations such as the Covid-19 outbreak where the world is constantly pushing back the forecast of the pandemic coming to an end.

Source: Kenanga Research - 24 Jun 2021