• We hold an optimistic view on the earnings outlook of MYEG Berhad (MYEG), envisioning it as a significant player in the world of digitalization services. This is reinforced by recent flows of announcements, underscoring MYEG's capacity to offer a range of services, particularly through its blockchain platform, Zetrix.

• Whilst concerns on MYEG's traditional concessions business arises, the company is actively expanding its presence in other regional markets, such as China, Hong Kong, and the Philippines. This strategic move is expected to drive MYEG’s organic growth, particularly within the Decentralized Finance (DeFi) segment.

• Reiterate our BUY recommendation on MYEG and maintain our TP of RM1.15 as we rolled over our evaluation to FY24. Our current TP implies PER of 16.0x (average of 5-year historical forward PER) and FY24F EPS of 7.2sen.

Zcert: Cross-Border Digital Verified Qualification Document System

MYEG, through Zetrix, has unveiled its latest qualification platform, enabling Chinese citizens to digitize their ID cards and driving licenses for international travel verification. Teaming up with China's public blockchain gateway, Zetrix facilitates the presentation of these verified credentials (VC) abroad, streamlining verification processes and minimizing the needs to extensively share personal information with service providers. Note that the launch was made last Dec, and we are still awaiting a substantial impact, as MYEG has yet to engage in larger-scale marketing efforts.

“Game Changer”: Transforming Cross-Border Trades

Zetrix also announced its pilot project in Nov last year, a collaboration with the Chinese banks, led by Bank of China, to introduce supply chain financing for global importers and exporters. The project features fully digital onboarding, cost-effective financing, and quick drawdown releases verified on Zetrix's blockchain. Through this onchain tracking, banks can mitigate risks, enhance ESG ratings, and reduce overall financing costs for users. We believe that this could also complement MYEG’s Ztrade, which streamlines the export of goods to China and is slated for official launch in 2QFY24.

Forging Strategic Alliance: Zetrix, Web3Labs and Summer Capital

Aside to that, Zetrix is also embarking on a strategic collaboration with Hong Kong’s Web3Labs and Summer Capital. Aligned with the Hong Kong’s Fintech Promotion Roadmap, this partnership seeks to leverage on Zetrix's strengths, Web3Labs' extensive network, and Summer Capital's portfolio with central goals to enhance blockchain applications, catalysing financial systems, and launching the Global Accelerator Program tailored for startups on the Zetrix platform. We are positive on these developments as we believe that it will expand MYEG's presence within the blockchain industry.

Result Recap

MYEG recorded an impressive performance in 4QFY23, with its profit after tax (PAT) of RM150.1mn, surged by more than 100% as compared to last year. This was in tandem with its 42% YoY increase in revenue, driven by: (i) contribution from newly launch services from its Zetrix blockchain platform, (ii) sales of Zetrix tokens, and (iii) Initial Exchange Offering (IEO) of Zetrix tokens on major global digital asset exchanges. As for full financial year of 2023, the group reported a YoY increase of 20.6% and 38.3% for its revenue and core PATAMI respectively, surpassing ours and consensus forecasts by 19% and 15%, due to stronger than expected revenue growth from the blockchain segment. Nevertheless, it is worth to note that the company's net gearing also surged by 76%, reflecting substantial investments in the blockchain infrastructure.

Changes to Earnings Forecast

We tweaked our FY24F/FY25F/FY26F earnings forecast higher by 43%, 98% and 108% respectively, as we factor in higher contributions from sales of Zetrix’s token and services rendered from the blockchain platform. Note that Ztrade is one of the services to be launched on Zetrix and management guided that it could earn a fixed submission fee of RMB200 for each Certificate of Origin (CO) issued to facilitate the shipments to China through Ztrade. Hence, this could potentially generate additional revenue of around RM250mn per annum, considering close to 2mn of annual shipments from Malaysia to China alone, as per management guidance.

MYEG Drive Testing System (MYDTS) Pilot Phase

While revenue from existing road transportation business is anticipated to remain subdued, MYEG has announced that it received a notification letter on 29 Nov 2023, from the Road Transport Department of Malaysia to commence a two months pilot phase for MYDTS ending 16 Feb 2024. MYDTS is an automated training and driving test system or e-Testing to assess the competencies of candidates undergoing the Drivers’ Learning Education Curriculum. Upon going live, it is expected to incur a capex of RM80-100mn in FY24. With an indicative fee of RM100 per test, we anticipate an annual revenue contribution of around RM50mn from this project, hence significant impact can only be seen within one to two years down the road.

Strengthening Synergies with Heitech Padu for Future e-Government Innovations

MYEG, through its wholly-owned subsidiary, MY E.G. Capital Sdn Bhd announced yesterday that it has acquired 14.5mn ordinary shares, representing around 14.4% equity interest in Heitech Padu Berhad (HTPADU), for a total cash consideration of RM31.2mn. HTPADU, listed on Bursa Malaysia, is active in the ICT sector, providing a wide range of services including system integration, application development and managed infrastructure services. This strategic move aims to foster collaboration between MYEG and HTPADU in e-government services, leveraging their expertise to drive innovation. The financial impact of the acquisition on MYEG is expected to be negligible. Notably, HTPADU is being shortlisted for the NIISE project, alongside Dagang Nexchange (DNEX) and Theta Edge (THETA). The company also has secured various projects from government ministries in the past six months (refer to Table 1). We are optimistic about this acquisition as we anticipate significant synergy between MYEG and HTPADU in the realm of the e-government services.

Positive Long-Term Outlook

In general, we are optimistic with MyEG’s earnings outlook leveraging on Zetrix as its next engine of growth. Over the long run, we believe this will be able to offset the restrained growth within MYEG's current ventures. Given its recent 15% to 25% contribution to revenue over the last three quarters (i.e. 2QFY23 till 4QFY23), we believe that Zetrix will be MYEG’s anchor, targeted to constitute around 40% - 50% to its topline by 2026/27. Nevertheless, several notable risks to our projections include: (i) potential delays in Ztrade’s deployment due to bureaucratic processes, particularly given governmental involvement, (ii) risk of regulatory changes and (iii) gradual adoption of Web 3.0, owing to security apprehensions.

Maintain BUY with a TP of RM1.15

We reiterate our BUY call for MYEG while maintaining the target price to RM1.15 as we rolled over our valuation to FY24. Our current TP suggests a PER of 16.0x (average of 5-year historical forward PER) and FY24F EPS of 7.2sen.

Source: BIMB Securities Research - 12 Mar 2024