Kenanga Research & Investment

GHL Systems - A Soft Patch, Growth Prospects Intact

Publish date: Thu, 30 Nov 2023, 10:48 AM

GHLSYS’s 9MFY23 result disappointed. Its 9MFY23 core net profit only grew 7% due to an unfavourable merchant mix and hefty migration cost to the cloud. We like GHLSYS as a proxy to robust in-store and online retail spending. We cut our FY23-24F net profit forecasts by 11% and 10%, respectively, lower our TP by 10% to RM0.88 (from RM0.98) but maintain our OUTPERFORM call.

Below expectations. GHLSYS’s 9MFY23 net profit of RM19.7m (+6.9% YoY) came in below expectation, accounting for only 64% and 57% of our full-year forecast and the full-year consensus estimate, respectively. The variance against our forecast was mainly attributable to higher operating expenditure as it embarks on data migration to the cloud.

Results’ highlight. YoY, GHLSYS’s 9MFY23 revenue climbed 11.7% on higher contributions from its solutions services segment (+32.3%) on the back of higher software sales and maintenance revenue. Meanwhile, its TPA segment which accounts for 69% of the group’s revenue rose 17% as a result of increased transaction value processed from retail spending both online and in-store. However, margins were slightly lower due to less favourable merchant mix. Moreover, increased opex was accrued as the group initiated data migration to the cloud. This has led to its net profit growing at a relatively slower pace of 6.9% compared to its revenue growth of 11.7%.

Chugging along. The group has seen transaction volumes trending upwards and will continue into the subsequent quarter, in line with the yearend retail season. In addition, it has seen improving indications for its shared services segment such as the sale of EDC terminals which saw a 30% QoQ improvement in 3QFY23. This along with its solutions services segment that is also seeing a healthy pipeline of deals is expected to contribute positively to its revenue in subsequent quarters.

Forecasts. We cut our FY23-24F net profit forecasts by 11% and 10%, respectively, to account for lower margins from its current merchant mix.

Consequently, we lower our TP by 10% to RM0.88 (from RM0.98) based on an unchanged 32x FY24F PER, in line with 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 continue to like GHL for: (i) it being a good a proxy to the robust in-store and online retail spending given that it is the largest terminal payment system provider in Malaysia, (ii) its venture into the high-growth Buy Now Pay Later (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 Nov 2023

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