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Saturday, October 12, 2013

GHL back on growth path (Star)

A FEW years ago, some people might have the impression that GHL Systems Bhd was a company that failed to deliver, specifically following its woeful venture in China that caused the company to bleed for four financial years.

Its fate appears to have changed quietly after a series of events, including a seemingly tussle at the shared services and solutions provider’s board. As the story unfolds, executive vice-chairman Simon Loh emerged as the single largest shareholder in 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.

It recently came under the limelight after proposing to buy Australian-listed electronic payment service provider e-pay Asia Ltd (EPY), a company controlled by Loh. EPY shareholders can choose to get RM1.21 cash per share or 2.75 shares in GHL for the takeover offer.

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

Concurrently, it proposed to place out new GHL shares equivalent to 20% of its enlarged share base to private equity (PE) fund Cycas, which in turn is a unit of Creador II, LLC, for 42 sen per GHL share.

Cycas director and Creador Sdn Bhd founder and chief executive officer 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 team.

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

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

He says GHL is on a high growth path, given the central bank’s effort to push Malaysia towards being a cashless payment society, and expects the company to be three to five times its current size in three to five years.

While the term based on Bursa Malaysia filing indicates that Cycas will stay invested in GHL for at least 180 days, Brahmal says it will be a longer period as the PE firm’s investment horizon is typically five to six years.

Creador is known for its investment in Oldtown Bhd and Bonia Corp Bhd.

In a closed meeting with the media, GHL group chief executive officer 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 the PE firm on GHL’s board, it 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 up the game so we have to step up and deliver,” Raj explains.

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

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

Raj echoes Brahmal’s statement that GHL will focus on its recurring income, notably via its new acquisition that will grow its transaction payment acquisition segment. After the consolidation, he expects recurring income for the merged entity to jump to 80% to 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 coined the deal as one “that has to be done” as it 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 for the bigger clientele base.

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

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

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

He stresses that the GHL board had done the due diligence and deriving at the fair price before deciding to purchase EPY.

BIMB Securities Research analyst Thong Pak Leng wrote in a note that the deal was positively viewed 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.

In the announcement, Loh had agreed to accept GHL’s offer to receive GHL shares in exchange of EPY shares via his vehicle Tobikiri Capital Ltd for his 19.99% stake.

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 will pave 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 deal is being brought up recently as EPY had in July bought out the 40% stake that Euronet Worldwide, Inc owned in its subsidiary, e-pay (M) Sdn Bhd, for A$8mil (RM24mil). Hence, it is more straightforward to acquire EPY after it wholly owns 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.

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