GHLSYS’s FY23 met expectations. Its net profit only inched up 2% on a 12% expansion in its top line due to lumpy spending on IT infrastructure to cater for expansion. It guided for positive earnings momentum in FY24 as it scales up its higher-margin business (i.e. micro-lending and direct merchant acquisition). We maintain our forecasts, TP of RM0.88 and OUTPERFORM call.

Within expectations. GHLSYS’s FY23 net profit of RM19.7m (+6.9% YoY) met expectations.

YoY, its FY23 revenue climbed 12.1% on higher contributions across all segments. Its solutions services segment trended 27% higher on the back of higher maintenance revenue in Malaysia coupled with increased software sales in the Philippines and Thai markets. The shared service segment inched up 2.2% due to higher EDC sales in Malaysia which offset the lower rental revenue. Meanwhile, its TPA segment which accounted for 68% of the group’s revenue rose 16% as a result of higher transaction volume and value.

However, its net profit only grew 2.4% due to inevitable spending on IT infrastructure to cater for expansion.

QoQ, its revenue rose 8.5% while net profit jumped 35.2% driven by year-end festive and holiday shopping season which translated to more online and offline transactions, coupled with a lower tax rate.

Outlook. The group anticipates the uptrend experienced in the three main markets it operates in and its three main business pillars to continue into FY24, underpinned by the continuation of cashless payment adoption. In addition, the group will continue to scale up its micro lending business as part of its strategy to introduce margin enhancing products.

Forecasts. We maintain our FY24F forecasts and introduce FY25F numbers.

Valuations. We also keep our TP of RM0.88 based on an unchanged 32x FY24F PER, in line with peers’ forward PER average such as Shift4 Payments, PayPal and Square. There is no adjustment to our TP based on ESG given a 3-star rating as appraised by us (see Page 4).

Investment case. We continue to like GHL for: (i) it being a good a proxy to the robust in-store and online retail spending given that it is the largest terminal payment system provider in Malaysia, (ii) its venture into the high- growth Buy Now Pay Later (BNPL) platform, and (iii) its growing presence in neighbouring countries. Maintain OUTPERFORM.

Risks to our call include: (i) slower total processed value (TPV) growth, (ii) the reluctance of merchants to adopt cashless transactions, and (iii) crowded playing field with many local and international competitors.

Source: Kenanga Research - 28 Feb 2024