• U/G BUY from Neutral, MYR0.92 TP, c.17% upside. 1Q23 core earnings of MYR6.6m (+24.4% YoY) met expectations with a stronger YoY performance on a higher transaction payment acquisition (TPA) segment with an uptick in the merchant discount rate (MDR) and improvements in solutions services. We see the current share price weakness as good buying opportunity into the cashless payment megatrend, where a healthy transaction payment value (TPV) growth trend continues – along with a robust pipeline of deals for shared and solutions services – to fuel growth.

• Within expectations. 1Q23 revenue and core profit of MYR104m (-8.3% QoQ, +12.3% YoY) and MYR6.6m (-31.7% QoQ) met our and Street’s estimates at 20.6% and 20.4% of full-year forecasts, given that 2H is usually seasonally stronger. The better YoY performance was supported by both the TPA and solution services segments, which registered 19% and 42% growth YoY. The continued growth in TPV and uptick in the MDR, coupled with stronger software sales and maintenance, fuelled the growth. However, the shared services segment was affected by lower rental revenue, partially cushioned by higher electronic data capture (EDC) hardware sales.

• Sequentially weaker due to the high base. Both TPA and solution services were flattish QoQ, but the weaker bottomline was dragged by the decreased shared services contributions from lower hardware EDC sales and rental. Better YoY performances from all countries that GHL Systems operates in were observed following the relaxation of travel restrictions, reopening of more retail outlets, and increases in tourism activities.

• TPV trend. 1Q23 total TPV remained on an uptrend (+14% YoY, +4% QoQ) to MYR5.6bn. This was supported by stronger retail spending and higher transactions at physical merchants on the back of improved mobility and increased inbound tourism. GHL’s acceptance points for TPA contracted 2% QoQ to 119,900pts while e-pay inched up to 56,400pts (+3% QoQ).

• Forecasts stay unchanged except for a minor tweak following the model up-keeping exercise. We keep our MYR0.92 TP, which is inclusive of a 6% ESG premium based on our proprietary methodology. This is based on unchanged 31x 2023F P/E, in line with GHL’s 5-year mean. The sustainable growth trend in cashless transaction continues to gain strength while the return of tourism activities could be another boon for better numbers into 2H23. Besides, more tractions can be expected from the SME lending and direct acquiring business. Downsides to our call include weaker-than-expected TPVs and margins, as well as bad debts and EDC terminal sales.

• ESG framework update. As there is now greater focus on the E pillar on critical climate change issues, we tweaked our ESG weightage. Henceforth, we assign a 50% weightage to the E pillar, followed by 25% each to the S and G pillars. See our 2 May thematic research for more details.

Source: RHB Research - 1 Jun 2023