• Still BUY, new MYR0.97 TP from MYR1.02, 29% upside, c.2% FY24F yield. 9M23 core earnings of MYR20.5m (+8.8% YoY) missed expectations due to softer-than-expected margins. Overall, solid growth in the transaction payment acquisition (TPA) segment and solution services drove the YoY growth. We expect the growth to continue in the coming quarters, supported by a seasonally stronger period and inbound tourism activities. Current share price presents a good buying opportunity into the cashless payment megatrend with an ever-growing transaction payment value (TPV).

• Missed expectations. GHL Systems’ 9M23 core profit was at 64.1% and 59.5% of our and Street’s full-year expectations. The underperformance was due to lower-than-expected margins amid higher operating costs. However, revenue grew 11.7% YoY. The TPA segment grew 16.9% YoY to MYR228.9m with stronger performances across the countries GHL operates in. Higher revenue (+32.2% YoY) for the solution services segment was spurred by stronger maintenance revenue and software sales. These more than offset the weakness in the shared services segment (-0.9% YoY) due to slower electronic data capture (EDC) terminal sales and rental revenue.

• Sequentially stronger. QoQ, core profit was up 13.4% on the back of higher revenue (+7.4%) and lower ETR. However, the higher revenue YoY (+14.2% YoY) failed to translate into higher profit (-14.1% YoY) due to margin compression on different revenue mix and payment card types, coupled with higher opex from network upgrades, lending, and direct acquiring businesses.

• TPV at a new high. 3Q23 combined TPV saw another record high (+26% YoY, +9% QoQ) of MYR6.3bn, supported by domestic consumption and higher tourism spending. Merchant discount rate (MDR) was flattish YoY at 0.67% but lower than 2Q23’s 0.7%. Gross profit for TPA trended lower due to the reclassification of opex costs of direct acquiring into COGS. GHL’s acceptance points that contributed to TPA and e-pay grew 3% QoQ and 2% YoY to 185,700.

• Outlook. We believe the sustainable growth trend in cashless transactions will continue into 4Q23 and FY24F, supported by higher adoption and the resumption of tourism activities in the ASEAN region – on top of the healthy project pipeline for GHL’s solutions segment. Diversification into SME Digital Loan solutions to tap into underserved SMEs on the existing merchant acquiring infrastructure and ecosystem could be a long-term catalyst.

• Forecasts and ESG. We trim our forecasts by 7.7%, 5.6% and 1.9% for FY23F-25F to factor in higher opex costs. Our TP is lowered to MYR0.97 (includes a 6% ESG premium), based on an unchanged 30x FY24F P/E, at -0.5x of the 5-year mean.

• Risks: Weaker-than-expected TPVs and margins, bad debts, and weak EDC terminal sales.

Source: RHB Securities Research - 30 Nov 2023