3QFY21 CNP of RM5.5m (-31% QoQ; -54% YoY) brings 9MFY21 CNP to RM19.5m (-10% YoY), which came in below expectations, representing 58% and 55% of our and consensus full-year estimates, respectively. Revenue fell at a slower quantum of 8% QoQ as consumer spending continued online, even from home. With the festive season drawing near, the reopening of the economy and resumption of local travel will lead to higher offline transactions with better margins. Maintain OUTPERFORM and TP of RM2.30.

Below expectation. GHL Systems (GHL)’s 3QFY21 CNP of RM5.5m (- 31% QoQ; -54% YoY) brings 9MFY21 CNP to RM19.5m (-10% YoY), which came in below expectations, representing 58% and 55% of our and consensus full-year estimates, respectively.

Results’ highlight. QoQ, 3QFY21 CNP sank 31% to RM5.5m on an 8% decline in revenue to RM85.6m largely due to FMCO enforcement during the period as positive Covid-19 cases in Malaysia peaked then, reaching more than 20k new cases each day. Despite the FMCO, revenue did not fall off significantly as consumers were still spending while staying at home. However, CNP fell at a larger quantum as online shopping typically yields lower margin compared to offline payment over the counter. YoY, the comparison further illustrates the impact as 3QFY21 revenue edged 7% lower while CNP fell 54% as 2QFY20 experienced a surge in offline shopping after MCO1.0 ended. On a cumulative basis, 9MFY21 revenue was 7% higher at RM264.9m while CNP was 10% lower at RM19.5m owing to different merchant mix.

Reopening of the economy. With Malaysia’s vaccination rate achieving c.77% of total population, daily Covid-19 cases have also fallen to a manageable level of c.5k (vs. >20k in 3QCY21). In addition, the government recently started to administer booster shots on a voluntary basis. This has facilitated the reopening of the economy where local travelling is back and crossing of states allowed. We learnt that GHL has also seen improving transaction volume for both its e-Pay and TPA segment in the recent months. As the festive season draws nearer, we are positive that this trend will likely continue, thanks to year-end sales as well as strong demand for local travel.

Reduce forecast for FY21E CNP by 17% but maintain FY22E CNP to reflect the slower-than-expected recovery in FY21 due to the FMCO. However, we believe that the reopening of the economy will accelerate consumer spending in FY22, coupled with the possibility of international cross-border travelling.

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 to adopt cashless transactions, (iii) competition from non-listed peers and overseas peers.

Source: Kenanga Research - 26 Nov 2021