Highlights/Comments (Fundamental)
We deem the the group's Q2'17 financial results in line with ours (42% of our full year estimate) and consensus expectation (between 40% to 45% of full year estimate) as annuity revenue continued to show QoQ increase of 5.5% from Q1'17. We expected 2H17 to be of double digit revenue growth and increase our FY18 EPS by 15% due to recent positive developments by RCBC group (Phillipines) and Alipay (Thailand). We upgrade GHLSYS to ADD with a target price of RM2.08/share based on 21 times FY18 EPS of 9.9 cents/share after upgrading FY18 EPS by 15%.
Not included in our forecast is FY18 booster from election cue (due by August 2018 the latest) as increased efforts from the government in DFTZ initiatives and positive efforts from Bank Negara in further development of fintech sandbox to be positive catalyst for the group.
We gather that merchant acquiring for Alipay in Malaysia since 2Q17 has increased by 10% to 15% month on month since March 2017. As of August 2017, merchant acquiring has increased by 72% since March 2017. We believe that this bods well in line with the revenue growth of the group. Q3'17 financial earnings could surprise on the upside as we had previously only factored 5% to 10% growth for merchant acquiring.
For merchant acquiring in Phillipines (to be commenced in Q4'17), we gather that there had been increased in committed merchants for using the AFPI (Beep card) even before the merchant acquiring start. We are optimistic on the group's revenue growth from Q4'17 from contributions from merchant acquiring for AFPI.
TPA continues to see uninterupted QoQ growth for the group. TPA processed in Q2'17 stood at 963.62million, increased of 2% from Q1'17 of 945.40million and increased of 50.7% compared to Q2'16 of 639.58million. We expect TPA to cross the psychological 1billion mark in Q3'17 due to positive developments in Malaysia and Phillipines and increase in Consumer Spend Indices in both regions.
Risks
Sharp decline in consumer spending in Malaysia, Phillipines and Thailand.
Failure to meet expected targets in merchant acquiring in Phillipines. Albeit minimal risk.
Forecasts
Upgrade to ADD.
Rating
ADD ↑ , TP: RM2.08
Valuation
We forecast FY18 financial earnings to come in between RM65million as we expect the group to achieve RM15million EPS as early as Q1'18.
We ascribed a target price of RM2.08/share based on 21 times FY18 EPS of 9.9cents/share.
Technical breakout (Technical)
The group experienced higher trading volume since July 18. Uptrend resistance breakout happened on Aug 17 with a high of RM1.72 on that trading day.
Share price had since traded between RM1.67 to RM1.80.
Share price formed a long black shadow candle on Aug 30, a day after the announcement of the financial results. Subsequently, a long black candle, grave stone doji and a black spinning top formed. A combination of a potential uptrend breakout chart.
A bullish bias may appear above the RM1.70 level, with an exit set at below the RM1.65 level.
The immediate resistance point is seen at the RM1.80 level. This is followed by the RM2.00 level.
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