GHL Systems Bhd
(Feb 12, 81.5 sen )
Maintain add call with a higher target price (TP) of RM1.10: We are positively surprised to learn that GHL Systems has signed a long-term agreement with Amanah Ikhtiar Malaysia (AIM) to provide cashless payment solutions for AIM’s borrowers.

This is GHL’s first project in the government sector. We see this announcement as another rerating catalyst for the stock and raise our financial year 2015 (FY15) and FY16 earnings per share (EPS) forecasts by 5% to 10% to account for the additional earnings from the new venture.

We maintain “add” with a higher target price of RM1.10, based on 23.8 times calendar year 2016 price-earnings ratio (PER), a 40% premium to the payment sector average, in view of its strong FY13 to FY16 EPS compound annual growth rate of 76% and an attractive PER-to-growth ratio of 0.7 times.

Stronger transaction payment acquisition earnings and mergers and acquisitions in new markets are potential catalysts. GHL is our top pick in the domestic technology sector.

GHL announced that it has entered into a long-term agreement with AIM Solutions Sdn Bhd, a subsidiary of AIM to provide cashless payment solutions for AIM’s borrowers.

This partnership will enable AIM borrowers to use its automated teller machines or a debit card instead of cash for loan repayments.

AIM is a microfinance services provider to small entrepreneurs with an estimated RM1.6 billion in disbursed loans as at Oct 14 last year and 350,000 borrowers nationwide.

GHL is expected to deploy 8,000 e-payment terminals for AIM’s collection agents beginning the first quarter of this year.

We expect this deal to positively contribute to earnings from FY15.

This partnership will help GHL to increase its footprint in Malaysia by an additional 8,000 terminals.

Management expects to spend about RM5 million in capital expenditure for the new e-payment terminal, and is confident of achieving more than one million transactions per month.

We estimate GHL will generate an additional RM800,000 to RM2.7 million in earnings in FY15 and FY16,  mainly derived from transaction fees for the loan repayment by borrowers.

Apart from that, the new terminals will enable GHL to offer additional services from existing e-pay products such as mobile prepaid top-ups and utility bill services for AIM members.

We think this service will be widely accepted by AIM collection agents and borrowers given that it eliminates the risk of handling cash.

Malaysia has 45 million debit cards in circulation, according to the data from Bank Negara Malaysia.

Overall, we think GHL’s growth prospects are intact and we remain confident of its execution strategy. — CIMB Research, Feb 12

This article first appeared in The Edge Financial Daily, on February 13, 2015.