INVESTMENT MERIT

- Acquiring e-Pay. GHLS has proposed to fully acquire e-Pay Asia Limited (EPY, an e-payment and electronic top-up service provider incorporated in Australia but with operations principally based in Malaysia) for AUD0.40/share or total consideration of AUD22.8m (c.RM68.9m). The offer price implies a forward FY13E PER of 8.6x (based on EPY’s FY13 targeted annualised EPS of 4.65 cents) or 6.7% premium to EPY’s closing price dated 3rd Oct 13.

- Salient details of the proposed acquisition. EPY’s shareholders who accept the offer will have to elect for either to receive cash of AUD0.40/share or to receive 2.75 GHL shares for each EPY share held based on GHL’s 5 days VWAP of RM0.44. Notably, this is a related party transaction as the largest shareholder of EPY, Simon Loh (with c.62% stake), is also the largest shareholder of GHLS (with c.28% stake).

- Positive on the acquisition. We are positive on the acquisition given the synergistic benefits to be reaped as followed: (i) By tapping into EPY’s network, the enlarged GHL group will have a wider footprint of 60k EDC machines in Malaysia, previously from a bank-centric business model to additional businesses (banks, telcos and retailers) with more diverse location coverages, and (ii) cross-selling of products and services (with both GHL and EPY’s existing customer base and integrated payment solutions) which could be more earnings accretive; iii) Earnings enhancement post acquisition.

- Valuation. By assuming similar targeted FY13 margins and top line growth of 5%, we projected EPY could achieve a FYE14 PAT of RM10.2m. Coupled with our forecast of RM11.8m for FY14E NP for GHL, the enlarged group could potentially achieve NP of RM22m or EPS of 6.6sen in FY14 (assuming all EPY shareholders accept the Offer and elect for GHL Consideration shares, which give rise to total enlarged shares of 339.7m). With the assumptions above, we believe GHL could be worth RM0.66 based on a targeted PER of 10x (which is at 15% discount to its closest peers average PER of 11.7x). In view of the recent strong share price rally, potential upside seems less exciting at 6% from here. NOT RATED.

SWOT ANALYSIS

- Strength: Multiple revenue options within one value flow.

- Weaknesses: Low switching costs for merchants and banks.

- Opportunities: Growing acceptance of electronic payments.

- Threats: Changes in economic and social conditions

TECHNICALS

- Resistance: RM0.660 (R1), RM0.730 (R2)

- Support: RM0.580 (S1), RM0.515 (S2)

- Views: Bullish

- Comments: GHL has turned bullish after after the share price “gap-up” with an explosive trading volume amid strong buying interest on the stock. In the short-term, we believe the share price may undergo a slight pull-back after the impressive run. Trader may start to collect @RM0.55-RM0.58 while aiming RM0.66 as short-to-mid term target. 

Source: AmeSecurities