GHLSYS guided for a strong 4QFY23 on: (i) RM1b e-wallet credits dished out via the eMadani initiative, and (ii) higher foreigners’ spending in Malaysia thanks to a 30-day visa-free entry for Chinese and Indian visitors from 1 Dec 2023. It has started direct merchant acquisition in the Philippines and will do the same in Thailand by end- 2023. We maintain our forecasts, TP of RM0.88 and OUTPERFORM call.

We came away from GHLSYS’s post-3QFY23 briefing feeling reassured of its near-term prospects. The key takeaways are as follows:

1. GHLSYS guided for higher transaction payment volume (TPV), notably in Dec. This optimism stems from the government's recent e-Madani initiative, offering RM100 e-wallet credit to individuals earning below RM100,000 annually starting 4 Dec 2023. This initiative presents a potential addressable volume of RM1b, as the credits are nontransferable and designated for spending. Furthermore, the anticipation of heightened spending by travellers in December, following the government's announcement of 30-days visa-free entry for visitors from China and India starting 1 Dec 2023, adds to the positive outlook.

2. Additionally, the company has initiated its direct merchant acquisition (DA) efforts in the Philippines, with plans to go live in Thailand by the end of 2023. This strategic move enables the group to access merchant segments overlooked by traditional banks and ensures faster onboarding by handling the entire process. The micro-lending initiative demonstrates strong growth, with RM45m deployed as at 3QFY23. It will be extending its micro-lending services into Thailand and the Philippines gradually.

3. The group has disclosed ongoing expenses related to its data migration to the cloud through Amazon Web Services (AWS), intending to expedite completion from mid-2025 to end-2024. Despite resulting in temporary higher expenses (c.RM5m in FY24 and c.RM6m in FY25), the group deems this investment necessary for future scalability. This initiative supports the expansion of service offerings, including microlending and direct merchant acquisition (DA), into neighbouring countries

Forecasts. Maintained.

We also maintain our TP of RM0.88 based on an unchanged 32x FY24F PER, in line with peer’s forward 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).

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 TPV growth, (ii) reluctance of merchants in adopting cashless transactions, (iii) competition from nonlisted peers and overseas peers.

Source: Kenanga Research - 4 Dec 2023