2QFY21 CNP of RM8.0m (+36% QoQ; -3.1% YoY) brings 6MFY21 CNP to RM13.9m (+45% YoY), which came in within expectations, representing 42% and 40% of our and consensus full-year estimates, respectively. Revenue increased 7% QoQ on higher EDC hardware sales while the solution services revenue doubled as the group managed to recognise higher project sales. Merchant footprint saw 3.2% QoQ increase on the back of higher adoption of digital payment. Maintain OUTPERFORM and Target Price of RM2.30.

Within expectation. GHL Systems (GHL) 2QFY21 CNP of RM8.0m (+36% QoQ; -3.1% YoY) brings 6MFY21 CNP to RM13.9m (+45% YoY), which came in within expectations, representing 42% and 40% of our and consensus full-year estimates, respectively.

Results’ highlight. QoQ, in spite of the worsening Covid-19 cases and the implementation of MCO 3.0, 2QFY21 CNP grew 36% to RM8.0m on a 7% increase in revenue to RM92.7m. The revenue growth was mainly attributable to the shared services segment which rose 13% on higher EDC hardware sales while the solution services revenue doubled as the group managed to recognise higher project sales. YoY, 2QFY21 revenue climbed 32% but CNP dipped 3.1% due to different merchant mix as a result of the MCO 3.0. On a cumulative basis, revenue was 16% higher at RM179.3m while CNP jumped 45% to RM13.9m.

Growing need for digital payment. The group saw a QoQ increase for its merchant footprint as the e-pay segment grew 3.4% to 45,200 while the TPA segment climbed 3.2% to 114,000. We believe this trend will likely continue as there is an urgent need for cash-based merchants to digitalise their payment acceptance system in order to remain relevant in the current situation where adoption of e-wallet is being accelerated due to the pandemic. As vaccination rate improves and more areas in Malaysia enter into Phase 2 of the National Recovery Plan, we expect an improvement in the retail and leisure segment which typically contributes higher margin per transaction.

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.

Maintain FY21E and FY22E earnings of RM33.5m and RM47.5m, representing growth of 8% and 42%, respectively.

Maintain OUTPERFORM rating and Target Price of RM2.30, based on FY22E PER of 55x (+1.5SD from 3-year mean).

Risks to our call include: (i) slower TPV growth, (ii) reluctance of merchants in adopting cashless transactions, (iii) competition from non listed peers and overseas peers.

Source: Kenanga Research - 26 Aug 2021