• NTT DATA Japan Corporation (NTTD Japan) has proposed to acquire 59% stake in GHL Systems Berhad (GHLSys) from four vendors for a total of RM724mn or RM1.08/share. Subsequently, it is required to extend a mandatory takeover offer to acquire all remaining shares at the same price.

• We view this development positively for both GHLSys and its shareholders as NTTD Japan’s entry brings significant potential, allowing GHLSys to leverage on the latter’s expertise.

• NTTD Japan has no intention in maintaining GHLSys’s listing status and it may request to delist the stock in the event that it garners more than 75% stake.

• Downgrade the stock to a SELL with unchanged TP of RM0.79. We think the offer price is particularly compelling at 27% premium over our TP. Hence, we recommend investors to SELL at market or accept the offer, whichever is higher.

Details of The Offer

On 27th May, NTT DATA Japan Corporation (NTTD Japan) has entered into an unconditional share purchase agreement (SPA) to acquire 670,440,235 ordinary shares in GHL Systems Berhad (GHLSys), representing approximately 59% of its total issued ordinary shares. The acquisition was made at a price of RM1.08 per share, totalling to a total cash consideration of RM724,075,453.80. This transaction will be completed within two market days from the notice date via direct business transaction (DBT). Following this acquisition, NTTD Japan is extending a mandatory takeover offer to acquire all remaining shares of GHLSys at the same price.

NTTD Japan does not intend to maintain GHLSys’s listing status if the Public Spread Requirement of minimum 25% is unmet after the closing date. Should they acquire 90% or more of the issued shares, Bursa will suspend trading and GHLSys will be delisted. If NTTD Japan holds more than 75% but less than 90%, they may request delisting and additional conditions may be imposed by Bursa.

About NTTD Japan

NTT DATA Japan Corporation (NTTD Japan), established on 1st November 2022, is a consulting and IT services company. Its principal activities encompass: i) providing consulting services, ii) offering integrated solutions, iii) developing systems and software, and iv) delivering maintenance and support services. NTTD Japan operates as a wholly-owned subsidiary of NTT DATA Group Corporation (NTTD Group), which is part of the NTT Group, one of the world's largest telecommunications conglomerates. The NTT Group's extensive global presence and diverse portfolio underscore its significant influence and reach within the telecommunications and IT sectors. NTTD Japan benefits from this vast network, enhancing its capability to deliver comprehensive and innovative solutions to clients worldwide.

Sources of Funding

NTTD Japan has assured that it possesses adequate financial resources to fulfill the entire acceptance of the offer and will guarantee that all shareholders who choose to accept the offer will be paid fully in cash.

Our View

We believe this takeover will benefit GHLSys by allowing it to leverage NTTD Japan’s extensive expertise in IT services and digital transformation. This partnership can enhance GHLSys’s service offerings and drive innovation in its core businesses. With the financial support of NTTD Japan and the NTT Group, GHLSys will gain greater financial stability, enabling it to invest in new technologies and expand its market presence. Additionally, NTTD Japan’s global reach can provide GHLSys with opportunities to expand its services internationally, leading to new revenue streams and a more diversified customer base, thereby strengthening GHLSys’s competitive position in the market.

Regarding the offer, we find the price of RM1.08 per share attractive, as it represents a premium over various VWAPs (refer to Table 1). There is no indicative PE, but based on FY23 core EPS of 2.2 sen, the PE stands at 49x, of which is also considered to be premium as compared to the average 5-year and 3-year historical PEs of 45x and 37x respectively.

Downgrade to SELL with unchanged TP of RM0.79

Downgrade GHLSys to a SELL with unchanged TP of RM0.79. We think the offer price is particularly compelling, providing a 27% premium over our initial TP. Hence, we recommend existing shareholders to SELL at market or accept the cash offer, whichever is higher.

Source: BIMB Securities Research - 28 May 2024