Saturday December 8, 2012

GHL’s change in focus pays off


Better days ahead: (from left) Kanagaraj, Loh and Ng pose for a photo in front of GHL System office. Better days ahead: (from left) Kanagaraj, Loh and Ng pose for a photo in front of GHL System office.

THE financial year ending Dec 31, 2012 (FY12) will be crucial for GHL Systems Bhd, a Main Market-listed payment solutions provider that has been lost-making since 2008.

The company posted a net profit totalling RM3.63mil for the nine months ended Sept 30 and will likely be profitable for the rest of the year. GHL executive vice-chairman Simon Loh tells StarBizweek that the company should be able to hit the target for profitability which was set earlier in the year. The company has set a net profit target of RM3.5mil to RM4mil for FY12.

The company posted a net loss of RM26.05mil for FY11 due to provisions and write-downs after uncovering irregular transactions in its China operations last November.

Since then, the company has shifted focus to Asean, closing down all its Chinese commercial operations and the Hong Kong-based holding company last year.

“I'll be very disappointed if FY13's net profit does not double from FY12. This is on business-as-usual without any additions,” Loh, also the co-founder of e-pay (M) Sdn Bhd and executive chairman of e-pay Asia Ltd, a company listed on the Australian Stock Exchange, says.

He emerged as the single largest shareholder in GHL back in late November 2010 after aggressively buying up shares in the company from late October of that year and became a board member in December. He currently has a 28.72% stake in the company.

After joining GHL's board, Loh, who has a background in the telecommunications industry, called upon old friends, Kanagaraj Lorenz and KK Ng, who come from the payment solutions and credit card backgrounds respectively, to help him turnaround the company.

New direction

Loh explains that transparency and corporate governance is now high on the board's list following the irregular transactions, which they discovered goes back to 2009.

He was redesignated to his current position after relinquishing the executive chairman's post with Datuk Kamaruddin Taib appointed the chairman.

“We've a very dynamic board, the first three quarters of this year has been very promising and we've been making changes over the last year-and-a-half which will drive the business to 2015,” Loh says.

The year 2015 crops up frequently in previous interviews and briefings that Loh has given since taking over. For him, it is a natural progression that as Asean economic and financial convergence comes around under the Asean Economic Community goals to be realised in 2015, the company should have a presence in countries around the region.

Right now, besides Malaysia, the company has a presence in Thailand and the Philippines while it has gradually pulled out of China, only retaining a small research and development team in Wuhan.

“Right now, four-fifths of the revenue come from Malaysia and the remainder from overseas operations, the target is to have a 50:50 ratio in contribution by 2015,” Loh says.

GHL provides solutions ranging from hardware to software to banks and merchants in the electronic payment infrastructure. The company was almost exclusively concentrated in the credit card payments segment of the industry until late last year.

But when Kanagaraj and Ng came on board, respectively as the group chief executive officer/executive director and executive director, a reorganisation took place with the company structured around three core business segments - shared services, solutions services and transaction payment acquisition.

And as part of the reorganisation, the company has focused on growing recurrent revenue via these three segments. “We're now seeing growth from our change in strategy to recurrent income from outright sales in the old days,” Loh says, adding that it was much tougher to hit targets with outright sales.

Kanagaraj says shared services for now contributes 70% to the company's revenue. GHL is the leading shared services provider in Malaysia and is looking to grow the higher value-added solutions services and transaction payment acquisition businesses.

Kanagaraj says there is a niche for the company as an intermediary providing outsourced services because banks today prefer not to deal with the smaller-scale merchants as there are no economies of scale.

“That's where we step in with our services. We're seeing this happen globally and we're positioned well to serve them because we've the technology,” he says.

Kanagaraj says this is happening in the United States and Europe where companies such as Square Inc and Euronet Worldwide have emerged to serve these smaller merchants.

“This trend will eventually take over in Asean and there is a huge layer of small merchants out there plus don't forget that the usage of electronic money is also growing,” Loh adds.

Loh has spoken of mergers and acquisitions (M&As) before but to grow the company's earnings and presence in Asean to the targets envisioned in 2015, there may be a need to speed up the M&A exercise, both locally and regionally.

His M&A plans for next year is happening against a backdrop of cross-border deals in the region, where three have been announced since August.

Several weeks ago, Jakarta-based PT Northstar Pacific Capital, part-owned by global private equity firm TPG Capital LP, offered to buy all of Singapore-listed Nera Telecommunications Ltd for US$146mil while earlier in the month Paris-based Ingenico SA announced the acquisition of the point-of-sales business of PT Integra Pratama and PT Integrasi Service Mandiri for an undisclosed amount.

Capital reduction

In mid-August, Munich-based Wirecard AG acquired PT Prima Vista Solusi for US$51.66mil cash and a provision of another US$6.11mil dependent on the operational profit of the company from 2012 to 2014.

Loh says the capital reduction and rights issue, proposed in mid-November, is not only a part of the company's restructuring but also a prelude to M&As in the region.

“There'll be those who want cash but others will want shares in the company, that's why we proposed the capital reduction as currently we're constrained in the share issuance due to the par value,” he says.

The reduction of the par value of the 146.8 million shares from 50 sen each to 20 sen each will see the existing issued and paid-up capital reduced to RM29.36mil from RM73.4mil.

The company also proposes a renounceable rights issue of up to 36.35 million new ordinary shares on the basis of one rights share for every four shares held after the proposed capital reduction. The aim is to raise RM11.99mil for capital expenditure and general working capital.

However, Loh says the capital reduction is only part of the plan. If and when needed, the company will go to the capital markets to raise funds for any M&A deals.

He says the company is exploring the possibility of a local M&A and was now in preliminary discussions. According to Ng, there are half-a-dozen other payment solution players in the market.

He says expansion into markets such as Indonesia and Vietnam where the company does not have a presence will have to be via M&As. “We've been sourcing for deals in the region over the last few months and will continue to do so,” Ng adds.

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