9M15 core profit of MYR7.2m fell below expectations as the introduction of GST continued to exert pressure on consumer spending in Malaysia, while the business climate in Thailand remained challenging. Maintain NEUTRAL with our TP revised to MYR1.08 (from MYR1.18, 1% upside).

Results review. 9M15 revenue of MYR154.4m (+33.4% YoY) was driven by higher contributions from its shared services (+28.6% YoY) and transaction payment acquisition (TPA) (+39.9% YoY) divisions, and partly offset by lower sales under its solution services unit (-22.6% YoY) due to slower non-recurrent hardware and software sales. Core earnings of MYR7.2m however fell below expectations at 59.6%/49.0% of our/consensus full-year estimates respectively. We attribute the underperformance to slower-than-expected consumer spending in Malaysia post Goods and Services Tax (GST) implementation while its TPA business in Thailand continued to face headwinds as local consumer spending was affected by the fluid political landscape as well as the recent bombing in Bangkok.

Other highlights. At a recent meeting, management highlighted that the TPA rollout in Malaysia is currently clocking in 350-450 merchant sign-ups per month. This is below its initial expectations of 500 merchants per month due to subpar retail sentiment. We believe this could potentially prolong into 2016 given the gloomy economic outlook.

Forecasts and risks. We cut our FY15F-17F EPS estimates by 5.2-14.4%, factoring in slower growth under its TPA model in view of the cautious market environment. Key risks include further slowdown in merchant acquisitions, sluggish adoption of e-payments and potential liability from merchants.

Maintain NEUTRAL. We revise our TP to MYR1.08 (from MYR1.18), based on an unchanged 27x 2016 P/E following our earnings revision. We use DCF (WACC of 8.8% and terminal growth rate of 1.5%) as a corroborative methodology and derived a valuation of MYR1.00 that is close to our revised TP. All in, we maintain our NEUTRAL call as we reiterate our cautious stance on potential near-term earnings headwinds due to slowing consumer spending, which in our view could impede merchants’ acceptance of a new payment platform.

DCF valuation. Under our corroborative DCF valuation, we assume annual capex allocation of MYR20m to invest in new equipment and facilities as the group intends to expand its presence in three core markets, i.e. Malaysia, Thailand and Philippines. We peg a terminal growth rate of 1.5%, which we deem reasonable as we expect electronic payments to be increasingly prevalent owing to the relentless push by the relevant authorities as we move towards a cashless society. Our valuation of MYR1.00 translates into 2016 P/E of 25.0x, which we deem to be reasonably close to our target multiple of 27.0x.

Financial Exhibits

Financial Exhibits

SWOT Analysis

Company Profile

GHL is principally involved in the sale and rental of electronic data capture (EDC) equipment and its related software and services and has expanded into the merchant acquisition business to accept debit and credit payments and conduct other payment services.

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Source: RHB Research - 26 Nov 2015