GHLSYS’s offline transaction volume will improve further in FY23 owing to increased inbound tourists as well as the shopping frenzy ahead of Hari Raya Aidil Fitri. The group has finalised the integration process with Mastercard and is now able to conduct direct acquisition of merchants. Meanwhile, we believe the e-Wallet incentive of RM400m announced during the recent new Budget 2023 will also bode well for the group. We maintain our earnings forecasts, TP of RM1.05 and OUTPERFORM call.

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

1. GHLSYS experienced a recovery in physical payments as its offline (which typically yields better margin) to online transaction ratio stood at 69%:31% in FY22 compared to 60%:40% in the prior year. The group is anticipating the recovery to continue in FY23, supported by: (i) higher cross border transactions with increased inbound tourists thanks to China’s relaxation of its lockdown policy, and (ii) upcoming Hari Raya festive season.

2. The group has finalised the integration of its proprietary payment interface (eGHL) with Mastercard’s payment gateway. As such, it is now able to conduct direct acquisition of merchants. GHLSYS also plans to conduct direct acquisition in the Philippines and subsequently expand into Thailand. GHLSYS reiterated that micro-lending will remain as one of its key focuses moving forward owing to positive feedback from merchants. Its micro lending to date is at around c.RM7.8m (solely in Malaysia) with an average lending size of RM50,000 per merchant. In FY23, the group aims to extend this offering in neighbouring countries such as Indonesia and Philippines.

3. The new Budget 2023 announced last Friday designates another round of e-Wallet incentive under the “e-Tunai Belia Rahmah” campaign worth RM400m, targeting youth aged between 18-20 years old. We believe the government’s continuous push for e-Wallet adoption bodes well for GHLSYS as the group has the largest footprint in Malaysia as well as expanding presence in neighboring countries.

Forecasts. Maintained.

We also maintain our TP of RM1.05 based on 35x FY23F PER, in line with peer’s forward average 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).

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. Maintain OUTPERFORM.

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 - 28 Feb 2023