GHL  Systems  (GHLS)  is  a  leading  provider  of  electronic  payment services  in  Asean.  Its  recently-proposed  acquisition  of  EPY  would boost  its  presence  and  scalability  across  Asean’s  markets  while facilitating  the  cross-selling  of  different  payment  platforms.  Longer term,  it  stands  to  benefit  from  the  government’s  move  to  promote electronic  payment  transactions.  The  stock  is  Not  Rated,  with  a MYR1.01 FV, based on a 12x FY14 P/E.

• Briefly  on  GHLS.  GHLS  is  the  leading  electronic  payment  service provider in Asean  offering integrated end-to-end payment infrastructure, services and technology.
• Proposed EPY acquisition.  GHLS had  earlier  on proposed to acquire 100%  of  E-pay  Asia Ltd  (EPY)  for  a  total  consideration  of  MYR68.9m. EPY  acts  as  an  intermediary  through  its  point-of-sale  (POS)  terminals between retail agents and end-consumers. It provides a payment system for  product  suppliers  (prepaid  phone  credit),  collects  payments  and issues  credits  on  behalf  of  suppliers  of  products  (in  locations  such  as petrol  stations,  convenience  stores  and  pharmacies).  Post-acquisition,
• GHLS  will  have  a  combined  total  of  60,000  electronic  draft  capture (EDC)  and  POS  terminals  in  Malaysia  from  42,000  currently.  This  will allow  the company  to have a stronger presence  as well as  open  up the possibility of cross-selling EPY products and payment services to GHLS’ merchant base.
• Part of Economic Transformation Programme (ETP). GHLS stands to benefit  from  the  Government’s  ETP  under  the  Financial  Services National Key Economic Area. To note that Bank Negara Malaysia (BNM)aims to promote a cheque-less economy and  reduce the dependence on cash  transactions  to  63%  by  2020  from  91%  currently.  BNM  is collaborating  with the  Ministry of Finance, Malaysian Electronic Payment System, Touch & Go and merchant acquirers, aims to increase merchant acceptance  of  electronics  payment  transactions  to  1.3m  terminals  by 2020  from 230k terminals currently.  We believe GHLS could  be  a major beneficiary as electronic payment transactions are expected to surge 10-fold from 1.2bn currently to 12.0bn transactions per year by 2020.

Expanding Footprint
Brief  introduction.  GHLS  is  the  leading  electronic  payment  service  provider  in Asean  offering  integrated  end-to-end  payment  infrastructure,  services  and technology.  Started out  in 1994 focusing mainly on R&D for online transactions  and software solutions,  it has  since ventured into shared services with banks as well as providing online transaction solutions to a diverse client base in Malaysia, Thailand, Philippines, China and Australia.

Business model. GHLS has three core business operating segments namely:i)  Shared  services:  GHLS  provides  the  sales,  rental  and  maintenance  of electronic  draft  capture  (EDC)  or  point  of  sale  (POS)  terminals.  The company is also involved in the sales of credit card and payment services to merchants  on  behalf  of  banks,  as  well  as  the  production  of  credit,  debit, automated teller machine (ATM) and loyalty cards.

ii)  Solution services: Providing value-added services to banks and merchants by  offering  network  solutions  management,  internet  payment  processing, prepaid and loyalty products. iii)  Transaction  payment  acquisition:  Under  a  contractual  agreement  with  the Malaysian  Electronic  Clearing  Corporation  SB  (MyClear),  a  wholly-owned subsidiary  of  BNM,  GHLS  is  an  approved  payment  system  operator providing credit and debit card transaction payment services to merchants.

GHLS’s  revenue  share  is  derived  from  a  small  portion  of  the  credit/debit sales transactions it handles. Proposed EPY acquisition. GHLS had earlier proposed to acquire 100% of EPY for a  total  consideration  of  MYR68.9m.  EPY  acts  as  an  intermediary  through  its  POS terminals between retail agents and end-consumers.  It  provides  a payment system for product suppliers (prepaid phone credit), collects payments and issues credits on behalf  of  suppliers  of  products  (in  locations  such  as  petrol  stations,  convenience stores and pharmacies). Post-acquisition, GHLS will have a combined total of 60,000 EDC  and  POS  terminals  in  Malaysia  from  42,000  currently.  This  will  allow  the company  to  have  a  stronger presence  as  well  as  open  up  the  possibility  of crossselling EPY products and payment services to GHLS’ merchant base.

Asean  market  potential.  In  1HFY13,  Malaysia  contributed  66.9%  (MYR21.5m)  of GHLS’ total revenue,  followed by  the  Philippines at 24.1% (MYR7.7m), Thailand at 8.2%  (MYR2.6m)  and  Australia  at  0.8%  (MYR0.3m).  Moving  forward,  GHLS  is looking to increase its presence and scalability in the  Asean  region,  especially in the less-developed  payment  solution  markets  such  as  the  Philippines,  Indonesia  and Thailand. In Singapore, 40.3 debit card transactions are conducted per person. This compares  to  Thailand’s  29.2,  Philippines’  4.3,  Malaysia’s  1.7  and  Indonesia’s  0.7. GHLS looks forward to capitalise on its Asean presence to expand into these markets by tapping into the increasing trend of migrating towards card-based payment system from cash-based currently.

Part  of  ETP.  GHLS  also  stands  to  benefit  from  the  Government’s  ETP  under  the Financial  Services  National  Key  Economic  Area.  Of  note,  under  one  of  the  Entry Point Projects, BNM aims to create a cheque-less economy and  reduce dependence 
on cash transactions to 63% by 2020  from 91% currently. On top of that, BNM,  in collaboration  with  the  Ministry  of  Finance,  Malaysian  Electronic  Payment  System, Touch  &  Go  and  merchant  acquirers,  aims  to  increase  merchant  acceptance  of electronics  payment  transactions  to  1.3m  terminals  by  2020  from  230k  terminals currently.  With  that,  we  believe  GHLS  could  be  a  major  beneficiary  as  electronic payment transactions are expected to increase 10-fold from 1.2bn currently to 12.0bn transactions per year by 2020.

Earnings  projection.  Judging  from  its  stronger  foothold  (taking  into  account  the potential  acquisition  of  EPY),  growing  market  potential,  as  well  as  supportive government  policies,  we  believe  GHLS  will  be  able  to  achieve  earnings  growth  of 402.5%/40.7%/22%  for  FY13/14/15,  with  net  earnings  of  MYR26m/36.5m/44.6m respectively after factoring  in the contribution from EPY. Although the company has no dividend policy and has yet to pay dividends, we do not discount such a possibility moving forward,  given its relatively sturdy balance sheet with net cash  of  MYR11.3m as of 1HFY13.

Valuation.  Lacking  a  direct  apple-to-apple  comparison,  we  believe  GHLS’  closest listed peers  are  MyEG Services (MYEG MK, NR), Datasonic (DSON MK, BUY,  FV: MYR10.51) and Cuscapi (CUSC MK,  NR).  That said, we derive  a  MYR1.01  FV  for GHLS by pegging a 12x FY14 P/E FY14 (which implies a  15% discount  to  its peer average given its relatively smaller earnings base). The stock is Not Rated.

Financial Exhibits

SWOT Analysis

•   Established regional presence within the electronic payment segment

Company Profile
GHL is involved in the provision of  ICT solutions throughout South-East Asia. This includes the front  and back-end infrastructure for POS payment systems, credit and debit card issuance, and transactional payment acquisition

Recommendation Chart

Source: RHB