Case Study of GHL Systems Berhad (0021)


Overview

GHL Systems Berhad is an investment holding company founded in Year 1994 and headquartered in Kuala Lumpur. GHLSYS was primarily involved as a leading payment service provider in Asia Pacific, specializing in payment related solutions and services for banks, merchants, telco, billers and other e-commerce players such as oil & gas, retail, transportation companies etc.

GHLSYS was listed in ACE Market on April 2003 and successfully transformed into Main Market of Bursa Malaysia on February 2007. With more than 20 years of experience in e-payment industry, the group successfully built a solid reputation in revolutionizing the ASEAN payment industry. They transformed the manual payment methods into a complete digital approach by simplifying the distribution payment as well as collection catering to all merchants in the region.

Presently, GHLSYS has business operations spanning across Malaysia, Philippines, Cambodia, Indonesia, Singapore and Australia.



Business Model

GHL Systems Berhad principally involved in the business segments such as shared services, solution services and transaction payment acquisitions.

GHLSYS provides a full range of solutions and services to banks and merchants affiliated to the acceptance of payment devices on sale, maintenance and rental basis. For examples, POS terminals and other payment acceptance devices which can perform electronic payments for credit cards, debit cards, e-Wallet, loyalty points capture, redemption transactions, loan repayment and other bank or merchant specific requirements.

The group also engaged in developing and selling in-house software and hardware programs, implementation services which enables the banks and merchants acquire a secure payment network and other related services such as installation, training and maintenance. They are also accredited by reputable organizations and governing bodies such as VISA, MasterCard, JCB, UPI, Alipay, MEPS, SIRIM, and Line Encryption Working Group.

Financial Review


Based on the past 5 financial years of revenue chart above, the group’s revenue grew years-on-years (y-o-y) from FY2014 (+157.58%), FY2015 (+28.16%), FY2016 (+16.34%), FY2017 (+3.15%) to FY2018 (+17.89%). On CAGR basis, GHLSYS has grown 36.11% based on 5 years. The increase in revenue was mainly attributed to 61% for Transaction Payment Acquisition (TPA), 34.2% for Shared Services and 4.8% for Solution Services.


GHL Systems Berhad has successfully recorded a considerable RM21,150 million increase in gross profit, translating to a double-digit growth of 20% from RM105.7 million in FY2017 to RM126.9 million in FY2018. Based on 5 years CAGR basis, the group has grown 25.75%. The increase in gross profit was mainly due to the increase in sales of EDC terminals in Malaysia and Thailand, higher rental fees and transaction fees collected, and better performance by geography from Thailand and Philippines, particularly in Transaction Payment Acquisition (TPA) segments.


The Net Profit After Tax (PAT) of GHLSYS rose 19.89% from RM20.5 million in FY2017 to a new high of RM24.6 million in FY2018. On a CAGR basis, the Profit After Tax (PAT) grew by 36.62% was in line with the growth of revenue and gross profit.

Cash Flow Statement

The net cash from operating activities has obtained a cash flow of RM2.5 million in FY2018 which is lesser than FY2017 amounted to RM56.4 million. Even though the cash flow is lesser in FY2018 compared to previous years, the company still have enough cash used for business expansion.

The net cash from investing activities in FY2018 is (-RM52.7 million) was mainly due to the purchase of Property, Plant & Equipment (PPE) (RM22.6 million), purchases of intangible assets (RM0.021 million), acquisition of subsidiaries (34.4 million), acquisition of additional interests in other investment (RM2.1 million), and placement in deposit pledged (RM4.5 million). The negative cash flow indicates that the firm is investing more in its business to grow.

The net cash from financing activities in FY2018 has obtained a positive figure of RM82.7 million was attributed to drawdown of term loans (RM79.9 million), drawdown of hire purchase (RM6.6 million) and proceeds received (Executive Share Scheme exercised, private placement and resale of treasury shares) (RM85.7 million). GHLSYS had also need to pay for term loans, Islamic facility, hire purchase creditors and banker’s acceptance with a total amounting to RM89.5 million.

Does the company able to pay back its liabilities? Based on my liquidity ratio calculation, GHLSYS has a current ratio of 1.096 times in FY2018 indicates that the company do not face any liquidity issue as they are capable to pay back its liabilities if any unforeseeable circumstances occurred by using current assets such as inventories, trade & receivables, current tax assets, cash and bank balances amounted to RM371.4 million.

Prospect and Challenges

GHLSYS is partnered with Mastercard, has launched a tokenized e-payments solution that offer simple, more secure and seamless digital payment experiences for consumers. For examples, the Mastercard Digital Enablement Services (MDES) for Merchants (M4M) is offered by GHLSYS’s fintech arm, eGHL (first payment service provider in Southeast Asia) for online and in apps transactions. The MDES will be used to protect user’s card information and sensitive accounts numbers, with a digital token that is unique to only the customer and the merchant. (Source: TheEdge, 6Jan2020)

GHLSYS plans to roll out 10,000 of merchant acquisition for Bank Negara Indonesia (BNI) and becomes e-Wallets provider in Indonesia starting in first quarter of 2020 (1Q2020). The groups also have started pilot program for money lending business in Malaysia and Thailand after they received the money lending license in August 2019, which will allow them offer financing to its merchant base. (Source: TheEdge, 6Dec2019).

GHLSYS via its 100% subsidiary GHL (Thailand) Co Ltd together with Thanachart Bank Public Company Limited have jointly launched smart payment terminals in Thailand as they see big opportunities to bring cashless payments to a wider range of business. The payment acceptance options in Thanachart banks include both PromptPay and credit / debit cards which follows the Thai QR Code Specification and WMVCo standards for Payment Systems. These services are expected help to reduce dependency on cash, as more business are gearing towards new e-payment methods. (TheEdge, 24July2019).


Rating System

Return on Equity (ROE) = Average

Revenue [5 years CAGR] = Good

Net Earnings [5 years CAGR] = Good

Basic Earnings per Share (EPS) [5 years CAGR] = Good

Interest Coverage = Good

My Insight

Based on my calculation on Discounted Earnings Model, GHL Systems Berhad has a fair value of RM4.291. The current market value of GHLSYS is RM1.64 which is undervalued. (Based on 13 Jan 2020). GHLSYS has a beta of 0.579 (500 days) indicates that the company is less volatile than current market, which also indicates investors / traders are not actively trading in this stock. While for short-term trader, they may face lower risk. Based on my computation of Compound Annual Growth Rate (CAGR), GHLSYS has an expected market return of 5.51%. GHLSYS has a Return of Equity (ROE) of 6.042%, which is slightly decreased from 7.459% from last year which means slightly unhealthy.

In conclusion, GHL Systems Berhad has achieved an outstanding performance in FY2018 as the revenue, gross profit and net profit after tax (PAT) have been increased years by years from FY2014 to FY2018. GHLSYS prospects remain bright by looking at the growth of cashless payment such as Mastercard Digital Enablement Services (MDES) and smart payment terminals. I believe the company can grow very well in the future as the electronic and digital payments are on the rise around the globe.

However, investors or traders must be cautious that the decreasing of Return on Equity (ROE) of the company indicates that the management’s effectiveness in utilization resources to generate return, for each dollar invested in the company, is decreasing.

Disclaimers

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Written by Stella Goh – Market Data Analyst | 15 January 2020

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