GHL Systems Bhd
(Oct 29, 88.5 sen)
Maintain add with target price of RM1.06: GHL’s bonus issue went ex yesterday. A total of 213 million new bonus shares were issued on the basis of one bonus share for every two existing shares. Ex-bonus, our target price adjusts to RM1.06

We are positive on the bonus issue. Although it does not alter the company’s fundamentals, we expect this corporate exercise to boost the stock’s liquidity and improve near-term trading sentiment. GHL’s growth strategy remains intact, driven by the acceleration in merchant acquisitions under its transaction payment acquisition (TPA) business. The TPA division contributed around 70% of group revenue in the first half (1H) ended June of financial year 2014 (1HFY14). Furthermore, GHL is on track to secure banking partnerships in Malaysia and the Philippines in the fourth quarter (4Q) in order to kick-start its TPA business.

In addition, a recent news report highlighted the company plans to expand its e-payment business in Indochina. This is in line with our expectations that the company will capitalise on Asean’s rising population income and improving broadband infrastructure, which would facilitate the implementation of the e-payment ecosystem. We expect GHL to post a stronger 2HFY14, with the full integration of e-Pay services into its operations and higher contribution from the Philippine operations due to its dominant market position and better traction for the TPA business.

Overall, we think the company is heading in the right direction and we are confident of management’s strategy of steering the company towards becoming a leading payment service provider in Asean.

We recommend investors accumulate the stock. Despite the strong share price rally of 65% year-to-date, we still think that GHL is an attractive stock in view of its strong TPA-driven earnings growth outlook. We see mergers and acquisitions in new markets such as Indonesia, and the possibility the company could be a takeover target as potential rerating catalysts. — CIMB Research, Oct 29

This article first appeared in The Edge Financial Daily, on October 30, 2014.