Brokers' take: KGI initiates 'outperform' on OxPay Financial on digital payment trend

OXPAY Financial TVV is likely well-positioned to benefit from the growing e-commerce and e-money trend, especially as Singapore shifts towards cashless payment options, KGI Securities said.

In a report on Tuesday (Nov 16), the brokerage initiated coverage on the financial services technology provider with an "outperform" call and target price of S$0.42, representing 25 times its estimates of OxPay's FY2022 earnings per share of S$0.017.

Shares of OxPay, formerly known as MC Payment, were trading at S$0.30 as at 1.27 pm on Nov 16, up S$0.01 or 3.5 per cent.

Analyst Megan Choo noted that amid the high entry barriers for the payments sector, OxPay is one of the 19 non-bank companies in Singapore to be awarded the merchant acquisition licence this year. She expects the highly accredited licence, together with OxPay's target market of small and medium enterprises (SMEs), will give the company an edge over other competitors in the SME space.

The increasing number of SMEs in Singapore should also boost OxPay's growth. The company, which mainly provides payment services to the retail and food and beverage industry, has a potential penetration rate of 19 per cent of SMEs in Singapore - a relatively reasonable market share, Choo added.

She also noted that since its reverse takeover and boardroom refreshment earlier this year, OxPay has been "aggressively expanding" its revenue segments of merchant payment services and digital commerce enabling services.

This includes setting up contactless digital ordering and payment solutions, adding GrabPay as a payment option for Watsons stores in Singapore, and Shopee Pay for merchants in Singapore, Malaysia and Thailand.

Choo expects the appointment of OxPay as the exclusive payment provider for F&B Hive Ventures, which has over 4,000 restaurants in Thailand, will contribute significantly to its revenue from FY2022.

Additionally, rising e-commerce growth in the region is driving digital payments, which should spearhead OxPay's top and bottom line.

The company's digital commerce enabling services segment should also stand to gain from e-commerce trends that can drive growth for its software-as-a-service products.

Compared to its peers, OxPay's gross margin of 47.7 per cent and core profit margin of 12.6 per cent in H1 2021 were also better than Bursa-listed GHL Systems and Dutch payment company Adyen. KGI's valuation of OxPay is also a "conservative" discount of 37 per cent to GHL's price-to-earnings ratio of 67.9 times, and one-eighth of Adyen's 204.2 times.

READ MORE: MC Payment in the red after one-off expenses relating to reverse takeover, board tussle

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