GHLSYS’s FY22 results beat expectations on higher revenue from the transaction payment acquisition (TPA) and shared services segments. Consumer spending rebounded in 2022 year-end festive season while China’s reopening will provide earnings continuity going forward. We raise FY23F by 12%, increase our TP by 31% to RM1.05 (from RM0.80) and upgrade our call to OUTPERFORM from MARKET PERFORM.

Above expectations. FY22 core net profit of RM28.2m (flat YoY) surpassed our forecast and consensus estimates by 20% and 13%, respectively. The variance against our forecast came largely from higher sales coupled with improved merchant mix which yielded better margins.

Results’ highlight. FY22 revenue climbed 14% on growing contributions from the TPA (+17.4%) and the shared services (+12.2%) segments which offset the weaker performance from solutions services (-25.2%) which was impacted by lower rental revenue. This time around, the group experienced an encouraging recovery in consumer spending during the year-end festival compared to the prior year. Note that the improvement came despite the absence of Chinese tourists.

Encouraging signs. Notwithstanding looming economic concerns regarding rising interest rates and inflationary pressures, GHL takes comfort in its diverse range of product offerings coupled with its large geographical presence. We believe the lifting of China’s lockdown restriction will also lead to gradual improvement in tourism activities and consumer spending.

Forecasts. We raise our FY23F net profit by 12% and introduce our FY24 numbers.

Investment thesis. We like GHL for: (i) being the largest player in Malaysia’s terminal payment business, (ii) its venture into the buy now pay later (BNPL) scheme, and (iii) having a growing presence in neighbouring countries.

We upgrade our call to OUTPERFORM from MARKET PERFORM with a higher TP of RM1.05 (previously RM0.80) on a higher FY23F PER of 35x (previously 30x), to reflect the uptrend in peers’ forward mean PER 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) reluctance of merchants in adopting cashless transactions, (iii) competition from non-listed peers and overseas peers.

Source: Kenanga Research - 24 Feb 2023