More upside seen at MyEG with widening revenue base

Services Bhd, once an investors’ darling due to its monopoly of government e-services, has seen its share price increase 45% over the past six months to close at RM1.99 last Wednesday, valuing the group at a price-to-earnings (PE) ratio of 25.8 times. But it is still trading below its valuation during 2014-2017, when its average PE ratio was 27 times.

The appeal of MyEG took a dive in 2018 when the-then Barisan Nasional (BN) government lost the 14th general election, as the group was perceived to be politically linked to the administration. This resulted in a sharp sell-down of its shares following the election.

Over the years, however, the group has proved that it has been able to overcome that perception by having its existing contracts with government agencies renewed, and it has even secured new jobs from them. The average of the 12-month Bloomberg consensus has MyEG’s price target at RM2.61, implying that there is still an upside of 31% from its closing price of RM1.99 last Wednesday. The target price of the six research houses covering the stock ranges from RM2.42 to RM3, with all recommending a “buy”.

While analysts seem convinced that MyEG deserves higher valuations, will investors be able to look beyond the past perception of the group?

MyEG has been swift in seizing the opportunity to diversify its revenue base by going into healthcare-related segments. Since the Covid-19 pandemic hit in March last year, MyEG has diversified its portfolio of e-government services to include Covid-19-related services such as health screening as well as quarantine services for inbound travellers under its MySafeTravel digital pass system.

more-upside-seen-at-myeg-with-widening-revenue-baseThe diversification has paid off for the group, as reflected in its revenue, which has continued to grow quarter on quarter for its financial year ended Dec 31, 2020 (FY2020). Net profit also continued to rise every quarter in FY2020, although the rate of growth slowed in the last quarter. In FY2020, MyEG’s net profit totalled RM268.16 million on revenue of RM532.06 million. There is no prior year comparison as it changed its financial year from Sept 30 to Dec 31 in 2019.

As an indication of its performance, revenue and net profit grew 12% and 10.9% respectively against the annualised consolidated financial year revenue and net profit for FY2019.

CGS-CIMB Research estimates in a March 22 report that the group derived about 15% of its FY2020 revenue from healthcare-related services.

MyEG co-founder and managing director Wong Thean Soon says its diversification into the healthcare-related segment will continue to drive growth for the group for at least the next year.

“Obviously, demand for products and services that help in the battle against Covid-19 has spiked. While our other business segments continued to perform steadily the past year, our venture into the healthcare space has of course helped drive growth in the group’s overall performance, and we believe that this will remain the case for at least the next 12 months,” he says in an email reply to The Edge.

AffinHwang Research says in a April 6 report that MyEG will continue to see strong revenue from its Covid-19 screening services for 1HFY2021 before it tapers off in the second half. This is on account of the mandatory screening of all foreign workers in the country that had to be done by March 31 as well as the continued high number of Covid-19 screenings taking place.

While the current healthcare services are related to Covid-19 and are expected to tail off in the future, MyEG is already planning to expand into other areas by riding on existing partnerships and relationships with medical device providers and pharmaceutical companies that have been established in the wake of the pandemic.

“Moving forward, we intend to leverage these relationships to expand into the provision of other healthcare-related products. For example, our Chinese vaccine partner, Anhui Zhifei Longcom Biopharmaceutial Co Ltd, develops and produces a wide range of pharmaceuticals that have not maximised their market potential outside China, which we can introduce in other markets. In fact, we are now in the process of introducing their rabies vaccine in the Philippines,” says Wong.

MyEG was appointed the exclusive distributor in Malaysia for Zhifei’s Covid-19 vaccine after signing a distribution agreement with Zhifei on Feb 22. However, the Malaysian government has yet to grant approvals to private service providers to sell the vaccine.

MyEG intends to be a pioneer in cryptocurrency space

While the provision of Covid-19-related services has turned into a new revenue stream for the group, Wong is most excited about the planned rollout of its cryptocurrencies this year. He says blockchain and cryptocurrencies will bring disruption to the entire financial sector, and even beyond that.

“Today, we are already seeing the impact of Bitcoin as an asset class, along with the very successful listing of Coinbase recently. Of course, cryptocurrencies go well beyond just Bitcoin, and in this regard, we see immense potential for stablecoins, asset-backed coins and non-fungible tokens (NFTs),” he says.

He believes the cryptocurrency scene will continue to see the introduction of many types of tokens for different purposes in the coming years.

“Consistent with our commitment to be an innovation leader, MyEG intends to be a pioneer in this space by issuing various types of cryptocurrencies with different utility in the coming months, subject to local government regulations, and this initiative will not be limited to only Malaysia, but will extend to other countries as well,” he says.

According to Kenanga Research, MyEG’s development of a cryptocurrency called stablecoin, which is pegged to the ringgit, is targeted to launch in 2HFY2021. In a March 31 report, the research firm says the cryptocurrency could be a “valuation kicker” and would also offer a thematic investment angle as digital currency is becoming increasingly popular.

Another technology-related segment that the group is looking into is virtual and augmented reality. Wong says the group has been actively investing in start-ups, mainly in China, which are involved in different parts of the entire virtual and augmented reality value chain.

“The reason we are focused on Chinese start-ups is because China is embracing XR (mixed reality) technology as a ‘killer application’ for 5G adoption. With Malaysia embarking on our own 5G rollout, we believe we are well poised to learn from the Chinese experience, thus enabling us to position ourselves as a prime mover in this space, both in Malaysia and outside,” he says.

Notably, MyEG is also pursuing a number of other new business opportunities, including the Road Transport Department’s e-testing work, and potential involvement in the implementation of a vaccine passport system.

MyEG is optimistic it will continue to grow this year, especially its businesses in Indonesia, the Philippines and Bangladesh.

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