RHB Research has upgraded GHL Systems to BUY call from Neutral, with the new TP (target price) of MYR1.54, with 33% upside. GHL Systems’ recent share price weakness presents a good opportunity to accumulate the stock – which has a secular growth trend in digitalisation, and is a cashless payment services provider in ASEAN – at below the mean valuation. In addition, the research house has reiterated its expectation of stronger 2Q22 numbers, buoyed by strong retail spending domestically, as expected by Retail Group Malaysia (RGM), and the growing trend of cashless transactions.
1Q22 earnings recap. GHLS reported 1Q22 revenue of MYR92.6m (+6.8% YoY) and core profit of MYR5.3m (-8.8% YoY). The higher revenue was driven by the transaction payment acquisition (TPA) division (+12.3%) from all the geographical segments, as lockdown measures eased in tandem with the progress of vaccination rates. However, core profit contracted due to lower GPM for the acquirer business, in both TPA and e-pay, as a result of changes in the merchant mix and product mix – amid the further relaxation of lockdown measures. 1Q22 total processed value (TPV) was flattish at MYR6.2bn (+1% YoY, -2% QoQ), with growth in the e-pay unit offsetting the weakness in the TPA segment, as Omicron infections peaked
in 1Q22.
Stronger QoQ in sight. 2Q22 results should point to an improvement, especially in TPA, buoyed by strong domestic retail spending – due in turn to various cash assistance measures such as the Employees Provident Fund special MYR10k cash withdrawal scheme. RGM expects the retail industry to grow by 25.7% YoY in 2Q22, with contributions coming mainly
from strong sales during the Aidil Fitri festival. RGM has also increased its annual retail industry growth forecast to 13.1% YoY, from 6.3%. This should sustain the overall TPV growth trend for GHLS, as the society moves towards more cashless transactions, as seen in recent years.
…while inflationary pressures are partially cushioned. It is believed the full reopening of the economy and borders should help boost the overall TPA business in both Thailand and Malaysia. Although global inflationary pressures may cap the growth in spending, it is believed domestic consumption is still on track to increase YoY, given the low base effect in 2021, and as pressure is cushioned by various subsidies.
Value emerges. RHB Research’s forecasts are unchanged. However, it upgrades the stock to BUY, as value has emerged following the recent share price weakness – this counter is now trading at below the 5-year mean. The research house’s TP (target price) drops to MYR1.54, as we roll forward the valuation base year to FY22 and peg to a lower target P/E of 40x (from 50x). This is in line with its 5-year mean, given the overall rising yield environment. Its TP is inclusive of a 6% ESG premium, based on our proprietary methodology.
Downside risks to our call include weaker-than-expected TPV, margins, and electronic data capture terminal sales.
