• Still BUY, new MYR0.88 TP from MYR0.97, 34% upside, c.2% FY24F yield. FY23 core earnings of MYR25.6m (-13.1% YoY) missed expectations on lower-than-expected margins and expected credit loss arising from the new lending business. The transaction payment acquisition (TPA) organic business stayed robust, supported by tourism. Despite results falling short, the cashless payment megatrend and sustainable growth in the transaction payment value (TPV) thesis remains. The current valuation is attractive.

• Missed. GHL Systems’ FY23 core earnings were below expectations at 89.5% and 89.2% of our and Street’s full-year expectations. The underperformance was on higher opex, technology upgrades, and provision of an expected credit loss (MYR4.8m). Overall, revenue showed a healthy growth trajectory of 12.2% YoY to MYR460.4m, buoyed by growth from all business segments. The TPA segment grew 16.4% YoY to MYR313m with stronger performances across the countries GHLS operates in. Higher revenue (+27.5% YoY) in the solution services segment was boosted by increased maintenance fees and software sales. The shared services segment recovered (2% YoY), with higher hardware sales in Malaysia and Thailand more than offsetting the slower rental revenues in Malaysia and the Philippines. No dividend was declared for FY23 (FY22 total dividend: 2.5 sen).

• QoQ, core profit of MYR6.7m was up 9.3% on higher revenue (+8.5%) and a lower effective tax rate. However, the higher revenue YoY (+14.2% YoY) failed to translate into increased profits (-14.1% YoY) due to margins compression on different revenue mix and payment card types, coupled with higher opex from technology upgrades on migration to cloud, expanding the lending and direct acquiring businesses, and credit loss provision.

• TPV at a new high. 4Q23 combined TPV grew by 21% YoY (+4% QoQ) to MYR6.5bn, supported by higher tourism spending, especially in Thailand and Malaysia. The merchant discount rate or MDR inched up to 0.73% on favourable payment and merchant fix, but the spread to GHLS continued to trend lower QoQ to 0.129% on unfavourable payment types and competition. The acceptance points that contributed to TPA and e-pay grew 7% QoQ (+13% YoY) to 199,400.

• The sustainable growth trend in cashless transactions is set to continue driving growth in FY24, supported by higher adoption and resumption of tourism activities in ASEAN. GHLS’ SME digital loans and micro financing solutions to tap into underserved SMEs could catalyse the group for the next growth phase and complement its payment solutions business.

• Forecasts and ESG. We trim FY24F and FY25F earnings by 9.7% and 5.4% by factoring in higher opex costs and lower TPA spreads. Our TP is lowered to MYR0.88 (includes a 10% 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 electronic data capture or EDC terminal sales.

Source: RHB Research - 28 Feb 2024