Target RM1.06 (Stock Rating: ADD)
GHL’s one-for-two bonus issue has gone ex today. Ex-bonus, our target price adjusts to RM1.06, still based on 23.8x CY16 P/E (at 40% premium over the global payment sector average of 17x, in view of its strong EPS CAGR of 75% in FY13-16 and attractive PEG of 0.6x). Stronger earnings from the TPA segment, M&A activities in new markets and the possibility that the company could be a takeover target are potential re-rating catalysts. Maintain Add.
What Happened
GHL’s bonus issue has gone ex today. 213m new bonus shares were issued on the basis of one bonus share for every two existing shares. Ex-bonus, our target price adjusts to RM1.06.
What We Think
We are positive on the bonus issue. Although it does not alter the company’s fundamentals, we expect this corporate exercise to boost the stock’s liquidity and improve near-term trading sentiment. GHL’s growth strategy remains intact, driven by the acceleration in merchant acquisitions under its transaction payment acquisition (TPA) business. The TPA division contributed around 70% of group revenue in 1H14. Furthermore, GHL is on track to secure banking partnerships in Malaysia and the Philippines in 4Q14 in order to kick-start its TPA business. In addition, a recent news report highlighted the company plans to expand its e-payment business in Indochina. This is in line with our expectations that the company will capitalise on ASEAN’s rising population income and improving broadband infrastructure, which would facilitate the implementation of e-payment ecosystem. We expect GHL to post a stronger 2H14, with the full integration of e-Pay services into GHL’s operations and higher contribution from the Philippines operations due to its dominant market position and better traction for the TPA business. Overall, we think that the company is heading in the right direction and we are confident on management’s strategy of steering the company towards becoming a leading payment service provider in ASEAN.
What You Should Do
We recommend investors to accumulate the stock. Despite the strong share price rally of 65% YTD, we still think that GHL is an attractive stock in view of its strong TPA-driven earnings growth outlook. We see M&A activities in new markets such as Indonesia and the possibility that the company could be a takeover target as potential re-rating catalysts.
Source: CIMB Daybreak - 29 October 2014
