The payment services/ecommerce space is changing very fast - some people use the expression 'tipping point'. There is a big Tsunami coming. Like the banks, only the biggest will survive the coming consolidation in the payment industry.The traditional business of GHL is no longer easy money like before. There is margin squeeze on all the smaller players - many will not survive. Look at Managepay Systems Bhd - it is the only listed company in similar business as GHL. Compare the financials. GHL is financially very strong (>RM60m cash), profitable and has diversified into new areas. More importantly, it has exposure to high growth overseas markets like Philippines which are contributing significantly (not just have office) to its profits every year - read the last few quarterly results. The new business model requires players to be financial strong. When the big bad wolf comes, is your house made of straw, wood or bricks? Over the next few years, many smaller players will disappear. Within a year or two, you will see a fundamentally different payment landscape. GHL will be an even bigger giant in Malaysia. Don't need to wait 5 years CG.

somehow I don't think you will need to wait 5 years. Happy Holidays CG

CG do you have email?

Just one more comment. You put a lot of faith in Creador as an investor. Creador is a private equity firm (similar to venture capital or VCs). Typically, PE/VC firms will have maybe one or 2 hit investments but mainly, the rest will be mediocre or poor. The point is no investor can get it right all the time but you will never hear about the mediocre/bad investments (no PE/VC firm will crow about their failures). PE/VCs invest to make returns. When they have achieved a target return, they are obliged to their investors to take profit. For example, all the VCs in the big tech companies will take profit after the IPO but that does not diminish the prospects of these companies in any way - analysts don't see their exit negatively. Creador too has taken profit in one of its earlier investments Old Town White Coffee (after only 1 year). At some stage, Creador will also take profit in GHL but Mr Loh and management will still be there to grow the business and deliver value to shareholders. Great businesses are those that can last forever. If you think of it as a train journey, then along the way, there will be passengers who get on and off.

Is GHL a Technology stock? Yes it is under the 'Technology' section of Bursa but if you really look at its business, what is it really? Where is the revenue derived from? Does it sell 'technology' (e.g. a software company like Microsoft) or does it provide payment related services? Recently GHL acquired e-pay which provides (prepaid)top up and bill collection services and has 3-4 million customers every month. Would you describe epay as technology company? Probably not. Yet epay will be a huge contributor to the enlarged group.

Why is the right classification important? It is not longer sufficient to say you are a technology company since it is is a very broad definition. Analysts will apply relevant valuation depending on a group of peer companies in similar businesses. So Google and Yahoo are peer companies in the search engine space. Social Networking companies like Facebook and Twitter are another group. Internet related companies (today command highest PER e.g. Alibaba, MOL) are another group. And of course companies like Euronet that are in the payment related space. Ecommerce companies (like Alibaba, Ebay, Amazon) are another.


So it is not so obvious how would you classify GHL today? The business is certainly evolving from what is was 2 or 3 years ago. It could be in (i) financial/payment services (ii) internet (iii) ecommerce (iv) B2C (v) even a combination of all the above?.

Euronet Worldwide NASDAQ: EEFT) is one of the largest payment companies in the world and its business is very similar to GHL but it is classified under 'Financial Services, Electronic funds transfer, Retail' rather than Technology. It has a market cap US$2.4b and PER 27x.

Food for thought

MOL files for NASDAQ IPO

http://www.digitalnewsasia.com/insights/mol-globals-ganesh-kumar-bangah-on-cusp-of-nasdaq-listing

A good indicator of 'speculative valuation' is the PE Multiple. Usually the internet stocks (e.g. Amazon.com PE 498x) are the ones with super high PER Multiples. For comparable valuations for 'payment' companies, you have to look outside Malaysia - even then not many similar companies. US based Euronet Worldwide Inc (EEFT) is one of the largest payment companies in the world and listed on NASDAQ. It has a market cap of US$2.3b and is trading at PE Multiple of 26.7X. Compare this with GHL 32x and Mpay 96x. At the end of Q1 2014, GHL had over RM60m cash. If you want exposure in the payment space, where do you place your bet?

GHL and Mpay are the only listed companies in the 'Payment Space' on Bursa. Currently, GHL has a market cap of ~RM360m (vs RM116m for MP), is trading at a PE of 32x (vs 96x - wow) (source : Bloomberg). GHL revenue for 2013 was RM64m and reported profits of RM5.2m (RM7m if you add back one off items). By comparison, MPay reported revenues of RM8.8m and profits of RM1.6m for 2013. In Q1 2014 GHL reported revenues of RM24.8m and profits of RM1.5m vs MPay Q1 revenues of RM2.85m and RM0.7m. GHL has a fast growing regional business while Mpay is focused mainly on Malaysia. As MC said, use your judgement. Read their latest Annual Reports

http://www.theedgemalaysia.com/business-news/274696-ghl-expects-earnings-to-more-than-double-after-acquisition.htm

Thank You HonWai. All the information is out there if you know where to look - that's where smart investors find value stocks and not by just following the market. The article is very informative and factual - no hype. Just read between the lines.

http://www.thestar.com.my/Business/Business-News/2014/02/20/Johor-Sultan-buys-15-MOL/