Highlight GHL Systems on sound financial footing

Highlight GHL Systems on sound financial footing
Business & Markets 2013
Written by Kathy Fong of theedgemalaysia.com
Tuesday, 30 July 2013 14:24

THE tide seems to have turned for GHL SYSTEMS BHD [], which specialises in electronic payment solutions, after the new management put its house in order.

The company returned to the black in the last fi nancial year ended Dec 31, 2012 (FY2012), after being in the red for four consecutive years.

“For the current year, we will see signifi cant improvement [in earnings],” says executive deputy chairman Simon Loh, adding that earnings growth will kick in again.

Loh, who co-founded e-Pay (M) Sdn Bhd, surfaced as a substantial shareholder in October 2010. He paid a large premium to take over a 12.05% equity stake, or 17.57 million shares, from BSNC Corp Bhd at 44 sen per share, which was then double the market price.

e-Pay provides gadgets and solutions for phone reloads and bill payments at kiosks.

“There wasn’t any due diligence done when I bought the shares. Still, I was willing to pay a 100% premium,” says Loh.

This was a calculated risk for him as GHL wasn’t debt-laden. As at March 31, 2012, the company had cash of RM11.87 million against borrowings of RM2.43 million.

After he took over the block of shares, Loh accumulated more on the open market. He is currently the single largest shareholder of GHL, with a 29% stake.

Although his move was perceived as hostile, he doesn’t think that is so. “I had been watching the company for more than fi ve years. I was constantly in talks with the previous management to have some form of alliances but nothing materialised,” he tells The Edge.

“When I knew that BSNC’s block was up for sale, I just seized the opportunity as I believe I could do a lot to grow GHL … I foresee great potential for electronic payment systems,” he adds.

After he became the controlling shareholder, he brought in some veterans in the electronic payment industry.

The previous CEO, deputy CEO and CFO were removed.

The new management bit the bullet to clean up the books in 2011, resulting in big losses of RM26.05 million.

The company’s operation in China was shut down and it made a provision of RM5.5 million to cover potential losses arising from irregular transactions there following an investigative audit.

On top of that, GHL wrote off RM20.9 million on its fi xed assets, namely property, plant and equipment, as the market value of its many electronic data capture terminals had depreciated sharply and some terminals had become obsolete.

GHL posted a net profit of RM4.4 million, or 3.04 sen per share, for FY2012 compared with a loss of RM26.05 million, or 18.04 sen per share, the year before, although revenue came in lower at RM53 million versus RM56.9 million previously.

GHL’s growth momentum seems to be gathering steam as refl ected in its results for the fi rst quarter ended March 31.

It made a quarterly net profi t of RM2.01 million, almost double the RM1.11 million it posted in the previous corresponding quarter. “We are confident of achieving better earnings this year,” says Loh.

Given that the first quarter’s net profit is already half of last year’s total of RM4.4 million, it is not hard to see why the management is upbeat on GHL’s prospects going forward.

The company’s core business revolves around plastic card transactions for credit and debit cards as well as pre-paid cards, including Touch n Go and customer loyalty cards.

GHL provides gadgets that come with payment solutions to merchants who are then connected to commercial banks. The gadgets effectively facilitate payment transactions.

Most local and commercial banks in the country are using GHL’s credit card payment solutions. Touch n Go is also a major client.

GHL also provides commercial banks special purpose solutions ranging from Internet payment processing to network solutions for cash delivery by postmen in Thailand as well as bus ticketing systems.

Recently, GHL won a bid to supply a payment network solution to an Australia-based telecommunications company.

“Our solution is to replace the existing one that is developed by a big multinational corporation. That speaks well of our products,” says Loh.

He stresses that scale is required to establish a strong footing in the industry. “That’s why we spend millions each year on capex,” he says. The recent rights issue, he adds, is to build up financial muscle for future expansion.

To build a recurring income base to sustain earnings growth, GHL is involved in recruiting merchants for credit/debit card transactions — something that commercial banks are doing, says its CEO Kanagaraj Lorenz , popularly known as Raj.

By doing this, GHL would be able to get a share of the commission income for every card transaction done by the merchants it recruits under its “Affiliation Programme”.

Raj reckons that recruiting merchants for debit card usage is a relatively untapped segment that GHL can explore in Asean.

GHL is approved by Bank Negara to recruit merchants for e-debit transactions under the MyClear (Malaysian Electronic Clearing Corp Sdn Bhd) initiative. MyClear is a wholly owned unit of Bank Negara.

Although credit cards are common in Malaysia, it remains a cash-based society with about 90% of transactions done on cash terms, compared with 60% in Singapore and the Netherlands, according to Raj.

He says Bank Negara has stepped up efforts to promote usage of electronic-based payment. In March, the central bank announced a target to increase the number of electronic payments per capita to 200 by 2020 from 56 in 2012.

“Nowadays, we can use our ATM card as a debit card to make payments at hypermarkets or some other merchants … but it is not popular as there isn’t much effort in promoting its usage,” says Raj. He previously worked in DBS Bank Ltd to create the first direct debit, online real time payment gateway in Singapore.

Apart from Malaysia, GHL has a presence in the Philippines, Thailand and Indonesia where cash transactions remain at a high level.

In the Philippines, GHL helped the largest fast food chain, Jollibee Food Corp, develop a pre-paid customer loyalty card. It also helped Pfizer Inc develop a customer loyalty card called Pfizers eCard, which enables the pharmaceutical firm to track customers’ spending pattern.

Raj says there is large loyalty card base in the Philippines, Thailand and Indonesia, providing growth potential for dual branded credit/debit cards given the captive subscriber base.

“This implies potential for payment solution providers like GHL,” he says.


This article first appeared in The Edge Malaysia Weekly, on July 22, 2013.