GHLSYS anticipates growing transaction payment value (TPV) on increasing adoption of digital payments, driven by the recovery in offline transactions as the year-end festive season draws near. However, its merchant discount rate (MDR) is expected to stabilise around current levels of c.1% after declining for the past few quarters. The group will continue to work on new product offerings with higher margins (e.g. direct acquisition, buy now pay later (BNPL) and micro lending) that are expected to be launched gradually in 2023. We maintain our forecasts, TP of RM0.80 and MARKET PERFORM call.

The key takeaways from our recent meeting with the group are as follows:

1. Despite the softer outlook for the general economy, GHLSYS expects consumer spending to remain sustainable moving into the year-end festive period. This is supported by increasing adoption of digital payment as evidenced by the 14% YoY increase in the group’s transaction payment value (TPV) for 9MFY22. Interestingly, the group’s online TPV trended lower 11% YoY in favour of a 46% YoY jump in offline TPV, indicating the return of consumer’s preference for physical spending.

2. GHLSYS’s initiative on direct acquisition of merchants is still on track as it has attained the necessary approvals and will be able to begin acquiring merchants in the Philippines starting 1QFY23. Subsequently, the group will expand into Thailand upon setting up its platform (integration of Mastercard’s payment gateway with GHLSYS’s proprietary payment interface) by end-2QFY23. To date, the group has dispersed c.RM10m via micro lending with an average lending size of RM50,000 per merchant and the traction so far has been very encouraging. The group hopes to replicate this offering in Indonesia and Philippines next year.

3. The group indicated that the 2.5 sen dividend declared — first payout in five years — does not set a precedent for future payout as the group has no intentions to set up a dividend policy. GHLSYS is still very much focused on growing its business by offering new products with better margins such as the BNPL scheme where it has recently partnered with Ablr, a start-up in Singapore, to offer flexible payment terms in the market to deliver more financing options for consumers and merchants.

Forecasts. Maintained.

Investment thesis. We like GHLSYS for: (i) being the largest player in Malaysia’s terminal payment business, (ii) its venture into the BNPL scheme, and (iii) having a growing presence in neighbouring countries. However, the subdued consumer spending in the current economic climate does not bode well for the group in the medium term.

We maintain our MARKET PERFORM call and TP of RM0.80 on FY23F PER of 30x (in line with peers’ forward mean such as Revenue Group, PayPal and Square). There is no adjustment to our TP based on ESG given a 3-star rating as appraised by us (see Page 4).

Risks to our call include: (i) slower total processed value (TPV) growth, (ii) the reluctance of merchants to adopt cashless transactions, and (iii) competition from existing and new local and international players.

Source: Kenanga Research - 2 Dec 2022