• Keep BUY and MYR0.88 TP, 15% upside. GHL Systems’ 9M22 core earnings of MYR17.4m (-15.5% YoY) met our expectation but missed consensus’. Despite higher revenue, profit was affected by weaker margin due to margin compression in shared services and lower contribution from solutions services. Meanwhile, the transaction payment acquisition (TPA) segment grew handsomely despite intense competition, with an uptick in the merchant discount rate (MDR) from sustained strong retail spending.

• As expected. GHLS’ 9M22 revenue of MYR297.2m (+12.2% YoY) translated into a core profit of MYR17.4m (-15.5% YoY), which was within our expectations at 67.7%, but below consensus’ at 61.7% of Street’s full- year forecast. A stronger TPA segment (+19.6% YoY) due to growing electronic payments processed, and a marginally higher shared services division (+3.7% YoY) driven by stronger hardware sales, more than offset the MYR3.1m decrease in solution services (-28.2% YoY), which was affected by lower one-off hardware sales and maintenance revenue.

• Sporadic upticks in MDR. Core profit in 3Q22 grew by 18.4% YoY and 44.7% QoQ to MYR7.1m due to higher electronic data capture (EDC) terminal sales and a stronger MDR trend for the TPA segment. 3Q22 EBITDA margin for the group was higher QoQ amid upticks in MDR but compressed YoY due to lower rental revenue and stronger performances from Thailand and the Philippines following the relaxation of movement restrictions. Notably, GPM for TPA improved slightly to 0.203% vs 0.190% in 2Q22 and 0.15% in 3Q21, while GPM for e-pay continued to inch lower to 0.780%, compared to 0.789% in 2Q22 and 0.929% in 3Q21.

• Transaction payment value (TPV) trend. 3Q22 total TPV remained on an uptrend, increasing 22% YoY to MYR6.36bn, supported by stronger retail spending on the back of an improved mobility trend which saw upticks in offline physical merchants. GHLS’ TPA and e-pay footprints grew 3% and 1% QoQ to 53,000 and 128,700 respectively.

• Maintain BUY. We leave our forecasts and TP unchanged as the results were in line. Our TP of MYR0.88 is based on 31x 2023 P/E, in line with its 5-year mean, inclusive of a 6% ESG premium, based on our proprietary methodology. Despite the expectation of lower YoY earnings in FY22, the share price weakness has priced in the slow results in FY22 and P/E de-rating that is in line with the sector revision. We believe the current share price presents a good entry point and recommend a BUY into this proxy for ASEAN’s payment digitalisation and the secular trends of switching to e- payment and cashless channels.

• Downside risks to our call include weaker-than-expected TPV and margin, as well as electronic data capture terminal sales.

Source: RHB Research - 30 Nov 2022