Historically High E-Payment Transactions In 2022

We expect e-payment companies’ earnings to grow 60% yoy in 2022 on the back of: a) higher transaction volume, and b) more payment touch points. We also reckon that Malaysia’s e-payment transactions would reach a record high in 2022 on the back of: a) higher non-cash transactions, and b) more foreigner spending contribution. Maintain OVERWEIGHT in anticipation of strong economic activity, high transaction volume and digital banking.

WHAT’S NEW

• Digital banking coming soon. Bank Negara Malaysia (BNM) will issue up to five digital banking licences in 1Q22, with BNM announcing in Jul 21 that it had received applications from 29 different bidders. We reckon this will benefit e-payment companies with more digital payment transactions in the future by tapping on new opportunities and reaching out to new merchants and customers. Among the applicants, Revenue Group is part of a consortium comprising Revenue Group, Sarawak State and Kenanga Investment Bank. Digital banks will address the market gaps in the underserved and unbanked segments
with companies providing suitable and affordable financial solutions by leveraging innovative application of technology. Our channel checks indicate that 8-10 shortlisted companies out of the 29 digital banking licence applications presented to BNM in late-Nov 21 and the award of the digital banking licenses might come as early as end-Jan 22.

• Record high transactions in 2022. We expect Malaysia’s total electronic payment (epayment) transaction volume and value to hit a historic high in 2022 on the back of: a) higher non-cash transactions, and b) more foreigner spending contribution. Interestingly, the total transaction value and volume as of 10M21 represented 94% and 97% of 2019 levels, despite the absence of foreign tourists. The strong transaction volume mainly came from both debit cards and e-money. The transactions via e-money had also grown significantly with total 10M21 transacted value exceeding the total transacted value in 2020, indicating the strong usage and stickiness of e-wallet and e-money among consumers.

ACTION

• Maintain OVERWEIGHT on the e-payment segment, in anticipation of a strong economic recovery and historic high transaction volume. We expect a strong three-year CAGR of 24% for the sector, with the continued sector earnings growth supported by higher transaction volume, stickiness of e-wallet users, and government initiatives. On top of that, the wider payment touch points with more installation in 2022 would also boost the companies’ earnings. We reckon that the recent dip in share price would be a great
opportunity to accumulate on weakness.

• Our top pick would be GHL Systems (GHLS MK/BUY/Target: RM2.30). We had revised down our earnings for GHL by 5-15% for 2021-23F, factoring in lower solution services and some housekeeping. We maintain BUY with a lower target price of RM2.30 (from RM2.40). We view the company as a good recovery play as we expect a higher earnings growth as compared with peers. This is mainly backed by higher contribution from its transaction payment acquisition segment in anticipation of the borders reopening with the arrival of more tourists and resumption of economic activities. We peg our valuation to 55x 2022F PE based to +1SD to its five-year mean.