1QFY22 CNP of RM5.2m (-40.2% QoQ; -12.3% YoY) came in below expectations, representing 11% and 12% of our and consensus full-year estimates, respectively. While lower revenue (-2.8% QoQ) was largely expected coming off a holiday season, the falloff in margins (GPM: 35% vs 39% in 4QFY21) was a negative surprise. In addition to the unfavourable revenue mix, we believe the negative impact also came from the change in consumer behaviour after assimilating the high inflation and high interest rate environment. The aggressive monetary tightening will likely temper optimism from the reopening of the economy and cross-border travel. Downgrade to MARKET PERFORM with a lower TP of RM1.40.

Below expectation. 1QFY22 CNP of RM5.2m (-40.2% QoQ; -12.3% YoY) came in below expectations, representing 11% and 12% of our and consensus full-year estimates, respectively.

Results’ highlight. QoQ, 1QFY22 CNP fell 40.2% to RM5.2m on a 2.8% dip in revenue to RM92.6m owing to lower value processed from both the TPA segment (-2.1% QoQ) and lower e-Pay segment (-3.5% QoQ). While the QoQ decline in revenue was largely expected coming from a strong year-end spending and holiday season in 4QFY21, the larger quantum of decline in CNP came as a negative surprise owing to different revenue mix. We believe this is likely due to a change in consumer spending behaviour as the year-end exuberance (with high offline payment) cooled off in 1QFY22 and consumers gradually assimilated the rising inflation rate environment. YoY, 1QFY22 revenue rose 6.8% while CNP declined 12.3%. GPM dipped to 35% (vs. 40.6%) due to unfavourable revenue mix as well as lower revenue from the shared service rental segment.

Crosswinds. Although there are positive catalysts such as the relaxation of Covid-19 protocols, reopening of the economy as well as cross-border travel that will boost consumer sentiment, the spike in inflation numbers coupled with aggressive monetary tightening policies implemented since early 2022 has dampened spending. While we still anticipate the group to see growth this year, it is likely to be modest as we take a more cautious stance by factoring in the negative sentiment of a high inflation and interest rate environment.

Reduced FY22E CNP and FY23E CNP by 27% and 31% to RM34.4m and RM39.1m, representing 22.1% and 13.9% growth, respectively.

We downgrade our call to MARKET PERFORM (previously OUTPERFORM) with a lower Target Price of RM1.40 (previously RM1.90), based on FY22E PER of 45x, representing +0.5SD from 5-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 - 27 May 2022