GHL back on growth path

12.10.13 / Author: Ng Bei Shan, The Star Online

A few years ago, some people might have had the impression that GHL Systems Bhd was a company that failed to deliver, especially after a woeful venture in China caused the company to bleed for financial years.

Its fate appears to have changed quietly after a series of events, including a board tussle.

Executive vice-chairman Simon Loh emerged as the single largest shareholder of GHL in 2010. Since then, the company saw some changes in its top rung and its bottomline began to improve, until it returned to the black for the financial year ended Dec 31, 2012.

The shared services and solutions provider recently came under the limelight after it proposed to buy Australian-listed electronic payment service provider e-pay Asia Ltd (EPY), a company controlled by Loh. EPY shareholders can opt for RM1.21 cash per share or 2.75 shares in GHL under the takeover.

GHL also proposed to place out new shares equivalent to 20% of its enlarged share base to private equity (PE) fund Cycas, a unit of Creador II LLC, at 42 sen a share.

Cycas director and Creador Sdn Bhd founder and CEO Brahmal Vasudevan tells StarBizWeek that the losses GHL made in the past few years did not pose a concern as the company has done the necessary cleaning up of its financials under the new management.

“We see a global trend of people move from cash to credit card transactions. There is a huge growth ahead of us,” he says, adding that the PE firm decided to invest in GHL because it is the leader in the credit card segment, specifically in Malaysia and the Philippines.

“Furthermore, (GHL’s) new business model focuses on growing its recurring income,” he says.

He believes GHL is set to grow, given the central bank’s effort to push Malaysia towards being a cashless society, and expects the company to be three to five times its current size in just as many years.

While Cycas has to stay invested in GHL for at least 180 days, Brahmal says he will remain a shareholder for longer than that as the PE firm’s investment horizon is typically five to six years. Creador is known for its investments in Oldtown Bhd and Bonia Corp Bhd.

In a meeting with the media, GHL group CEO and executive director Raj Lorenz says Cycas came in as a strategic investor and will help the group chart its growth by seeking potential merger and acquisitions.

With a representative of Cycas on GHL’s board, the company will also be able to get advice in expanding its business, he adds.

“In a sense, it keeps us marching to what the investors want and tightens the game so we have to step up and deliver,” Raj explains.

Meanwhile, Brahmal says Cycas will look at GHL’s growth from two perspectives – organic and inorganic.

“We are open to opportunities to buy companies that are synergistic to GHL’s business but there will be much emphasis on organic growth as more (electronic data capture) terminals can be deployed in the market,” he elaborates.

Raj concurs that GHL will focus on its recurring income, notably via its new acquisition that will grow its transaction payment segment. After the consolidation, he expects recurring income for the merged entity to jump to 80%-90% from 70% currently.

GHL generally liaises with banks but with the proposed acquisition, it will be able to tap into the pool of merchants that EPY deals directly with.

Raj says the deal “has to be done” as GHL sees value in the acquisition target’s prepaid top-up, bill payment collection and loyalty programme businesses, while it will also be able to cross-sell services and products to a bigger client base.

According to him, EPY, established in 1999, captures 60% of the online top-up market share. It will also carve a new path for GHL to tap into the cash market as opposed to the credit card market, which is its bread and butter business.

He says there are also plans to bring EPY to the markets where GHL has a foothold, namely Thailand and the Philippines. EPY’s business is predominantly in Malaysia.

While the deal could have been proposed earlier – given that Loh has been on GHL’s board since 2010 – Raj concedes that it was exactly Loh’s interest in both companies that took the company some time to iron out the issues.

He stresses that GHL’s board had carried out its due diligence and derived a fair price before deciding to purchase EPY.

BIMB Securities Research analyst Thong Pak Leng wrtes in a note that the deal is a good one as the total consideration of RM68.9mil for EPY implies a financial year ended June 30, 2013 forward price-to-earnings of 7.8 times.

Loh has already agreed to accept GHL’s offer for his 19.99% stake in exchange for EPY shares via his vehicle Tobikiri Capital Ltd.

Raj says GHL has also received a letter of intent from Loh to accept the offer for the remaining 41.61% stake in EPY shares for GHL shares, thus paving the way for GHL to own a controlling stake in EPY.

He says the company has not approached Tan Sri Vincent Tan, who owns a 7% in EPY.

Raj also explains that the buyout was proposed only now as EPY had in July taken up the 40% stake that Euronet Worldwide Inc owned in its subsidiary, e-pay (M) Sdn Bhd, for A$8mil (RM24mil). GHL had preferred to acquire EPY after the latter gained total ownership of the unit that is EPY’s core income contributor.

He says the company targets to complete the exercise by the first quarter of 2014, subject to approvals from the shareholders and regulators.