GHLSYS (0021) - GHL Systems Bhd - Encouraging meeting with BNM
Target RM1.45 (Stock Rating: ADD)
Our meeting with BNM’s Payment System Policy Department representatives revealed that BNM is committed to reduce the interchange fees (IF) between financial institutions and setting up a mechanism to ensure the banks promote point-of-sales (POS) terminal growth among smaller merchants by imposing lower IF caps. We raise FY16-17 EPS by 11.1-12.5% for higher merchant acquisitions, assisted by the new payment system reform framework. Maintain Add and raise our target price to RM1.45, based on 27.8x CY16 P/E (still at 40% premium over the revised payment sector average P/E of 20x vs. previous 17x, in view of GHL’s strong FY14-16 EPS CAGR of 85%). Stronger TPA earnings and M&As in new markets are potential re-rating catalysts.
What Happened
We visited Bank Negara Malaysia’s (BNM) Payment System Policy Department (PSPD) today with two institutional clients to discuss the recently-introduced payment card reform framework. The meeting was hosted by Dr Zainal Hasfi, Deputy Director of PSPD. The discussion focused on the rationale for the payment system reform implementation, likely impact on merchant discount rates (MDR) and the strategic measures to encourage financial institutions like banks to drive POS terminal and debit card transaction growth. BNM also expects the reduction in IF to reduce MDR and encourage smaller merchants to accept debit and credit cards.
What We Think
We were positively surprised to learn that BNM has a strategy to ensure that the banks promote usage of POS terminals among smaller merchants by imposing lower IF caps, if the banks do not meet the POS terminal and debit card transaction targets in time. We see the reduction in IF as positive for GHL because this will encourage more merchants to embrace e-payments by making them cheaper. Moreover, this would result in bigger market potential for GHL, as it would not be economical for the banks to provide the 800k POS terminals at lower IF. We think that merchant acquirers like GHL will still earn lucrative income, as they would not necessarily have to reduce their MDR spreads.
What You Should Do
Accumulate GHL. Overall, we think that GHL’s earnings growth prospects are intact and we are still confident on its execution strategy. GHL is our top pick for domestic technology sector. We will closely follow its Malaysian credit card transaction payment acquisition (TPA) performance in 3Q15 onwards.
Source: CIMB Daybreak - 09 April 2015
Target RM1.45 (Stock Rating: ADD)
Our meeting with BNM’s Payment System Policy Department representatives revealed that BNM is committed to reduce the interchange fees (IF) between financial institutions and setting up a mechanism to ensure the banks promote point-of-sales (POS) terminal growth among smaller merchants by imposing lower IF caps. We raise FY16-17 EPS by 11.1-12.5% for higher merchant acquisitions, assisted by the new payment system reform framework. Maintain Add and raise our target price to RM1.45, based on 27.8x CY16 P/E (still at 40% premium over the revised payment sector average P/E of 20x vs. previous 17x, in view of GHL’s strong FY14-16 EPS CAGR of 85%). Stronger TPA earnings and M&As in new markets are potential re-rating catalysts.
What Happened
We visited Bank Negara Malaysia’s (BNM) Payment System Policy Department (PSPD) today with two institutional clients to discuss the recently-introduced payment card reform framework. The meeting was hosted by Dr Zainal Hasfi, Deputy Director of PSPD. The discussion focused on the rationale for the payment system reform implementation, likely impact on merchant discount rates (MDR) and the strategic measures to encourage financial institutions like banks to drive POS terminal and debit card transaction growth. BNM also expects the reduction in IF to reduce MDR and encourage smaller merchants to accept debit and credit cards.
What We Think
We were positively surprised to learn that BNM has a strategy to ensure that the banks promote usage of POS terminals among smaller merchants by imposing lower IF caps, if the banks do not meet the POS terminal and debit card transaction targets in time. We see the reduction in IF as positive for GHL because this will encourage more merchants to embrace e-payments by making them cheaper. Moreover, this would result in bigger market potential for GHL, as it would not be economical for the banks to provide the 800k POS terminals at lower IF. We think that merchant acquirers like GHL will still earn lucrative income, as they would not necessarily have to reduce their MDR spreads.
What You Should Do
Accumulate GHL. Overall, we think that GHL’s earnings growth prospects are intact and we are still confident on its execution strategy. GHL is our top pick for domestic technology sector. We will closely follow its Malaysian credit card transaction payment acquisition (TPA) performance in 3Q15 onwards.
Source: CIMB Daybreak - 09 April 2015
