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Tuesday, September 9, 2014

CIMB Research starts coverage of GHL Systems


KUALA LUMPUR: CIMB Equities Research has started coverage of GHL Systems with a target price of RM1.60 as it is entering an exciting growth phase with its merchant acquisition strategy following the completion of e-pay’s integration.
“We like its strong regional presence to capitalise on the growing transition to e-payment solutions across Asean countries,” it said on Tuesday.
CIMB Research said the RM1.60 target price was based on 23.8 times CY16 price-to-earnings (P/E), about 40% premium to the payment sector P/E of 17 times.
The research house said this was in view of its strong earnings EPS CAGR of 75.2% in FY13-16 and attractive price-to-earnings growth (PEG) of 0.48 times. This provides investors with 54% upside.
“Stronger earnings from the transaction payment acquisition (TPA) segment, M&A activities in new markets and as a potential takeover target could be re-rating catalysts,” it said. 
CIMB Research said GHL is a full-fledged e-payment provider with a strong presence in Southeast Asian countries like Malaysia, Thailand and the Philippines.
“The company is an attractive proxy for e-payment growth in Asean, driven by rising population income and better broadband infrastructure to facilitate the e-payment ecosystem.
“We see huge potential for e-payment services due to a combination of low debit and credit card penetration, and high cash transactions in the region. For example, Malaysia has a much lower point-of-sale (POS) terminals of eight units per 1,000 inhabitants compared to Singapore at 33 units,” it said.
The research house was excited about the growth potential from the TPA segment following the acquisition of e-pay in 1Q14. There is an attractive opportunity in the TPA market given that most of the smaller third- and fourth-tier merchants are still underserved by banks and GHL is confident of serving this segment with its low-cost solution.
“We expect the TPA segment revenue contribution to the group to increase from 19% in FY13 to c.63-74% in FY14-16,” it said.
CIMB Research said another growth driver for GHL is the Malaysian government-led initiative to create an integrated payment system under EPP 4, within the Financial Services National Key Economic Area (NKEA).
The government is planning to reduce total cash transactions from over 90% to 63% by 2020.
In order to encourage non-cash transactions, Bank Negara (BNM) plans to have 1.3 million POS terminals by 2020 from just over 230,000 now. GHL should benefit from the estimated 10-fold surge in e-payment transactions from 1.2 billion to 12 billion annually in 2020.

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