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Monday, 18 July 2016

GHL Systems Berhad - The Hidden Gem

Company Profile

GHL is led by Mr. Simon Loh (Executive Vice Chairman) who joined in 2010. He spend 2 years to revamp the company till it is profitable and is has been running well since.
There are some interesting info that I like about this company and believe it might be suitable for investors who can tolerate higher valuation stocks.

The GHL AGM was held at 29 June and I was contemplating to either go to Kuala Lumpur Country Club or HSS IPO Launching. Ended up I went to KL Country Club at Bukit Kiara to join her AGM. =)

What GHL System do? 

Extracted from the corporate website:

Provides integrated end-to-end payment solutions encompassing physical and virtual payments on sale and rental basis, including Electronic Data Capture (EDC) terminals compliant to the Europay-Mastercard-Visa (EMV) platform, contactless readers, network access routers, and online payment gateways.

Why I like this company? She fulfilled 3 requirements that I am looking for and has a good growth story. She only failed one of my 4 personal investment requirement.  
1st Growth Potential

She has successfully penetrated the Philippines market in May 2016 for Transaction Payment Acquisition TPA with Rizal Commercial Banking Corp Philippines and targeting to acquire 3000 merchants for 2016. May and June alone, she has successfully acquired 1000 merchants! The new earnings are yet to be captured in the latest QR and the FY End 2016.

2nd Financial Health Analysis

Income Statement
Profit Margin = 5.28% - pass (<5% fail)
4% in year 2014 to 5.28% in year 2015 – increasing for the past 3 years

Interest Cover = 3.55x - pass (<3x fail)

Profit for the past 5 years = Yes, steadily grow from RM4.37m year 2012 to RM11.33m year 2016
(it has made rights and bonus in year 2013 and 2014, so EPS was diluted) 

Balance Sheet
Current Ratio = 1.73x – pass (<1x fail)
Debts to Equity Ratio = 0.55x – pass (>3x fail)

Cash Flow
Positive at least 1 year = Pass - Yes from RM45m to RM59m

The Trade receivables has declined from RM34m to Rm12m which is a positive note. Bank Borrowings dropped from RM26m to Rm 8.8m. A good effort to par down debts and saving the interests cost. The good thing is the cash flow is being managed well. It is at a increasing manner! Please refer below:


3rd. Pricing Analysis (Failed the Pricing Analysis - High Forward PE)

Price to Earnings 
Using the Rolling 4 Quarters EPS: 1.737 = 0.96/1.737 = 55x (not cheap at all)
Forecast Future PE by using 1st Quarter 2016 and annualized it by X4 = 1.737x4 = 2.68
Forecast Future P/E = 0.96/2.68 X 100 = 35.8x (still very expensive)
Looking at TPA secured in Philippines, it is possible for her to repeat the 1st Quarter 2016 result and might be better.

Price to Book Value – 2.46x (not cheap but acceptable)
Dividend Yield – 0 (don't expect to get anything from her)

4. Catalysts for 2016:

1.       The main catalyst which really catches my eyes for possible long term investment is the penetration into new countries and capturing new TPA market. She is also potentially to embrace to technological change, participating mainly in Fintech technology according to Simon. 

2.       Creador has remained as the major shareholder since Oct 2014 at the entry price of 42 cents. His initial block was at 20 cents and latest filing as at 2015 annual report was 28.42%. Guess what, during the latest AGM, the representative from Creador Ms. Lim Sze Mei (ED for Creador) was sitting with the GHL board. I get some feeling of comfort from this situation knowing most likely Creador will be there for some time in the near future. 


From the technical perspective, it has touched the resistance level of 0.96 which is also the wave C. May take a look if you are a keen TA practitioner.

Conclusion & Personal Opinion:

I like the strong management team lead by Mr. Simon and Mr. Kanagaraj. The solid fundamental numbers recorded since Simon took over on year 2010 and revamp the company till it is profitable. With the potential Fintech technology to be explored for e payment, I believe it is a good stock to watch for 2016. Creador stays definitely makes her a sexy stock to watch out.

But mind you, the potential risks involved are the high valuations she has for now. The P/E is at staggering 55x which does not make sensible Pricing Analysis entry. It only has Healthy Financial Ratios but Poor Pricing Analysis. Involvement in overseas business also exposing her to the currency risk. For the rich valuations she has, it is not a company that suitable for low risk takers. You can only rely on the growth stories from her ventures in overseas to offset the rich valuations in the near future.  For those who follow FA Rules strictly, this is not the stock for you. 

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Humble Pie

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