By Stella Goh – Market Data Analyst | 27 February 2020
Overview
MY E.G. Services Berhad (MYEG) is an MSC-status Malaysia-based investment holding company founded by Wong Thean Soon on 17 February 2000 and headquartered in Petaling Jaya, Selangor. MYEG is primarily involved as a service provider that engages in the development and implementation of e-Government services for the Malaysian Government and the provision of other related services of e-Government projects.
MYEG was listed in ACE Market in 2005 and successfully transferred onto the Main Market of Bursa Malaysia on 7 January 2009. The group operates more than 100 service centres across Malaysia by providing both e-Government and commercial services to agencies such as Dewan Bandaraya Kuala Lumpur (DBKL), Jabatan Insolvency Malaysia (JIM), Jabatan Pengangkutan Jalan (JPJ), Jabatan Pendaftaran Negara (JPN), Polis Diraja Malaysia (PDRM), Jabatan Imigresen Malaysia and others.
Business Model
MYEG builds, operates and owns the electronic channel to deliver services from various government agencies to Malaysian citizens and businesses. The overall e-Government initiatives focus on allowing citizens to retrieve information and perform transactions with various services suppliers in a convenient and timely manner by utilizing the Electronic Services (e-Services) platforms.
The company’s business can be categorized into two strategic business divisions. For example, Government to Citizen (G2C) and Government / Enterprise Solution (GES). G2C services refer to services such as motoring driving theory test bookings, issuance and renewal of licenses, electronic bill payment as well as online information services such as checking of traffic summonses and electronic bankruptcy or liquidation searches. While GES are non-Internet based services such as software and enterprise solutions, system development and maintenance as well as services rendered are at the e-Services Centres. The other services include renewal of foreign worker permits, Zakat payments, Kuala Lumpur City Hall assessment and summons payments.
Financial Review
Based on past 5 financial years’ revenue chart above, the group’s revenue grew year-on-year (y-o-y) from FY2014 (+43.65%), FY2015 (+28.80%), FY2016 (+99.08%), FY2017 (+31.76%) to FY2018 (+51.47%). On a CAGR basis, MYEG has grown 49.03% based on 5 years. The increase in revenue was mainly attributed to over 80% from commercial services with the remaining 20% coming from the e-Government services fuelled by demand growth.
MYEG has recorded a RM128.999 million increase in gross profit, translating to a growth of 45.43% from RM283.959 million in FY2017 to RM412.958 million in FY2018. Based on 5 years of CAGR basis, the group’s gross profit has grown 49.77%.
The increase in gross profit for MYEG is due to the strong uptake for the group’s services, ranging from concession services such as online foreign workers work permit renewal and rehiring programs from the Immigration Department and online road tax renewal for the Road Transport Department (JPJ). The ancillary and commercial services like online auto insurance renewal and foreign worker insurance renewal also further contributed to the group’s profits. (Source: Annual Report 2018).
The Profit After Tax (PAT) of MYEG has a decrease of 37.03% from RM200.048 million in FY2017 to RM125.970 million in FY2018. The PAT was moderated by an impairment of RM95.45 million due from an associate company and an impairment of equipment amounting to RM76.29 million in relation to the abolishment of the Govt Service Tax (GST) regime prior to the introduction of the Sales & Service Tax (SST) regime. (Source: Annual Report 2018).
Cash Flow Statements
The net cash from operating activities has provided a positive cash flow of RM168.853 million in FY2018 as compared to RM84.804 million in the previous year indicating that the company is healthy and has enough cash to be used for business expansion.
The net cash from investing activities in FY2018 (-RM65.239 million) was mainly due to the purchase of Property, Plant and Equipment (PPE) of (RM47.485 million), purchase of other investment (RM19.579 million), acquisition of investment properties (RM6.443 million), purchase of joint venture (RM2.726 million) and advances to a joint venture (RM13,000). The negative cash flow indicates that the firm is investing in its business for growth. (Source: Annual Report 2018).
The net cash from financing activities in FY2018 (-RM125.386 million) was mainly due to the dividend paid to shareholders (RM61.308 million), purchase of treasury shares (RM52.804 million), repayment of term loans (RM19.358 million), repayment of hire purchase and finance lease obligations (RM2.676 million) and repayment of revolving credit (RM1.2 million).
Is the company able to pay back its liabilities?
Based on liquidity ratio calculation, MYEG has a current ratio of 1.6032 times in FY2018 indicating that the company does not face any liquidity issues as it is capable of paying back its liabilities if any unforeseeable circumstances occur. MYEG is able to do so by using current assets such as inventories, financing receivables, trade receivables, other receivables, deposits & prepayments, amount owing by a joint venture, current tax assets, fixed deposits with licensed banks, cash and bank balances amounting to RM358.142 million.
Prospect and Challenges
MYEG has successfully developed an extensive artificial intelligence (AI)-powered coronavirus risk profiling system in a partnership with China’s Phoenix Travel Worldwide Co., with capabilities that include historical geolocation and anomaly tracking for foreign visitors. The system will be offered to the governments of Malaysia and Philippines. (Source: The Edge Markets, 19Feb2020).
According to the company, the system encompasses analytics of a vast number of available data points, including visitors’ previous known whereabouts as well as heart rate and blood pressure readings crossed referenced against public transportation ridership and exposure to the locations with incidences of infections. (Source: The Malaysian Reserve, 26 Feb 2020).
MYEG‘s subsidiary in Indonesia, PT Cartenz Inti Utama (Cartenz Group) has secured additional government mandates to roll-out its tax monitoring system to 30 more cities, marking an expansion of the program that has already been undertaken actively in Jakarta. The project tenure ranges from one year to three years and it is renewable upon expiry. (Source: The Edge Markets, 14Jan2020).
Since the unveiling of the joint venture in 2018, the group has started the implementation of real-time monitoring of business transactions for tax computation purposes, with installations in retail merchant premises and presently ongoing in Jakarta under a pilot program offered at no charge. Following the successful implementation in Jakarta, the group has recently been contracted by the governments of seven other provinces in Indonesia to deploy, on a chargeable basis, the tax monitoring system to cover a total of 30 cities. (Source: Digital News Asia, 14Jan2020)
Rating System
Return on Equity (ROE) = Average
Revenue [5 years CAGR] = Good
Net Earnings [5 years CAGR] = Good
Basic Earnings per Share (EPS) [5 years CAGR] = Good
Interest Coverage = Good
Quality of Earnings = Average
Insight
Based on the calculation of Discounted Earnings Model, MYEG has an intrinsic value of RM1.622. The current share price of MYEG is RM1.18 which makes it an undervalued stock (as at 26 Feb 2020). MYEG has a beta of 1.462 (500 days) indicating that the share price is more volatile than the current market. Based on the computation of Compound Annual Growth Rate (CAGR), MYEG has an expected market return of 4.96%.
In conclusion, MYEG has achieved an outstanding performance in FY2018 with the highest revenue and gross profit over the past 5 years. It’s prospect remains bright as the expansion of tax monitoring system to more regions in Indonesia represents an important milestone for MYEG, not only in the strengthening of its position as a leading e-Government services provider in Indonesia, but also in the widening of its footprint in the country’s retail sector.
Disclaimers
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