GHLSYS’s 1HFY23 result missed expectations. Its 1HFY23 net profit rose 22% driven by festive spending, partially offset by a higher tax. It is poised for a better 2H on the back of improved revenue mix with the introduction of new high-margin products such as SME lending and buy-now-pay-later (BNPL) payment. We cut our FY23-24F net profit forecasts by 10% each, reduce our TP by 7% to RM0.98 (from RM1.05) but maintain our OUTPERFORM call.

Below expectations. GHLSYS’s 1HFY23 net profit of RM13.0m (+21.9% YoY) came in below expectation, accounting for only 38% and 39% of our full-year forecast and the full-year consensus estimate, respectively. The variance against our forecast was mainly attributable to higher-than-expected effective tax rate in 2QFY23.

Results’ highlight. YoY, GHLSYS’s 1HFY23 revenue climbed 10.4% on higher contributions from its TPA segment (+16.6%) and the solution services segment (+38.1%) driven by higher consumer spending resulting from a slew of festivals during the quarter such as Hari Raya, Easter and Songkran in Thailand. Meanwhile, the weakness from solutions services (-5.6%) persisted, reflecting a decline in rental revenue and sale of EDC terminals in Malaysia and Philippines. That said, the group managed to maintain a stable gross profit margin of 32.3% on favourable revenue mix and segment mix. However, the higher effective tax rate of 35.8% (vs. 31.5% in 1HFY22) resulted in a lower-thanexpected bottom line despite still recording a 21.9% growth.

Anticipating a better 2H. As with its seasonal trend, the group expects improved performance in the 2HFY23 on the back of the continuous trend of cashless payment adoption coupled with the gradual roll-out of better margins products such as its newly launched SME lending, direct merchant acquisition as well as its BNPL payment offerings.

Forecasts. We cut our FY23-24F net profit forecasts by 10% each to account for the higher effective tax rate.

Correspondingly, we trim our TP by 7% to RM0.98 (from RM1.05) based on a lower 32x (from 35x) rolled-forward FY24F PER, reflecting a slight dip amongst peers’ forward PER average such as Shift4 Payments, 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).

We like GHL for: (i) being the largest player in Malaysia’s terminal payment business, (ii) its venture into the BNPL platform, and (iii) its growing presence in neighbouring countries. Maintain OUTPERFORM.

Risks to our call include: (i) slower total processed value (TPV) growth, (ii) the reluctance of merchants to adopt cashless transactions, (iii) crowded playing field with many local and international competitors.

Source: Kenanga Research - 30 Aug 2023