GST, M&A to drive payment sector

by **Cals** Tue 22 Oct 2013, 09:06

Posted on 22 October 2013 - 05:39am

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PETALING JAYA (Oct 22, 2013): The onset of the goods and services tax (GST) as well as possible merger and acquisition activities (M&As) would be a major catalyst for the payment sector, namely companies that derive a substantial portion of their revenue from facilitating electronic payments, HLIB Research said.

It said the implementation of GST will require a massive reworking of the back-end of the payments system at both the business and government levels.

The research firm chose Censof Bhd as its top pick because of its organic growth related to government departments shifting towards electronic payments, potential work related to the implementation of GST and value accretion from the acquisition of Time Engineering Bhd.

"We expect Censof to benefit from back-end systems work and training government departments who are existing clients," HLIB Research analyst Low Yee Huap said in a report yesterday.

He estimates that GST-related work could be worth up to RM40 million or RM500,000 per site, with Censof maintaining around 80 sites, and would have to be completed by the end of 2014 in time for GST implementation.

"We understand that Brilliance Information Sdn Bhd, has won the back-end job for the Royal Malaysian Customs system," he said, adding that in the consumer-to-government (C2G) segment, My EG Services Bhd (MyEg) may also benefit from point of sale monitoring.

Low also believes that Malaysia and Asean are on an unstoppable trend towards a higher adoption of electronic payments, which is driving growth in the payment sector.

Although transportation and telecommunication infrastructure has been widely covered, Asian-based payment infrastructure remains in the shadows.

Looking forward, as the growth cycle accelerates, he said M&As are likely to drive sentiment and stock price of payment companies as domestic players search for increased economies of scale.

He pointed to GHL Systems Bhd's proposed acquisition of E Pay Asia Ltd on Oct 4, to become the dominate top-up provider in Malaysia with a 60% market share, coincided with a 300% jump in the share price of E Pay and about a 50% jump in GHL Systems stock.

Low also sees GHL Systems as a potential acquisition target of international firms, with low borrowing costs wanting to buy into emerging market growth.