This article first appeared in The Edge Malaysia Weekly on February 13, 2023 - February 19, 2023

THE sell-off in MyEG Services Bhd (MyEG) shares continued last Friday as uncertainty loomed over its e-government services concession with the Immigration Department of Malaysia.

This followed a report by a local English daily implying that MyEG may no longer be involved in the nation’s immigration system by 2025, as immigration-related services and processes will be directly undertaken by the government via the national integrated immigration system (NIISe) from 2025 onwards.

However, MyEG managing director Wong Thean Soon, better known as TS Wong, believes the market has overreacted to the news and that it is business as usual for the company.

“At present, the group has an existing concession with the government that remains in force, and will continue to operate its services in accordance with the agreed terms and conditions.

“MYEG has been providing immigration-related services since 2010, starting with the provision of online renewal of work permits for foreign maids, and progressively, this service was expanded to cover all categories of foreign workers in the subsequent years.

“The provision of this service was last extended in May 2020 for a three-year period and the process for a subsequent extension is ongoing,” he tells The Edge.

The contract includes handling the Immigration Department’s foreign workers permit renewal (FWPR) services and online Road Transport Department (JPJ) services.

Wong points out that the company has submitted a request for contract extension to the government. “[The] market is totally overreacting. We urge investors to think through the facts.”

In addition, MyEG has issued a statement via a filing with Bursa Malaysia last week stating that the management has not held any meetings with the Home Ministry or the Immigration Department on the intention to converge all immigration transactions under the NIISe.

Maybank Investment Bank Research expects MyEG to see a revenue shortfall of at least 6% to 7% annually in 2025 and 8% to 10% in 2026 should the government migrate the immigration system to NIISe. “Revenues could fall off only by the second half of 2025, following the completion and migration of the immigration system to NIISe. MyEG should, however, still be able to continue its cross-selling business, although it remains uncertain how effectively it can market the insurance products through the new platform later.”

Despite the lower revenue expected in the next three years, Maybank IB remains optimistic on MyEG and maintains its “buy” call with a lower target price of RM1.01 per share from RM1.37.

Last Friday, MyEG shares fell as low as 59 sen apiece from their 73.5 sen intra-day high as investors, spooked by the outlook for the company’s long-term earnings trajectory, further sold down their holdings.

Its share price fell more than 16% last week to close at 61 sen on Friday, which led to RM790 million evaporating from MyEG’s market capitalisation.

Meanwhile, CGS-CIMB Research reckons that MyEG could receive another extension to its immigration-related services concession in the second half of this year, given that NIISe will not be ready anytime soon.

“We believe this is the optimal outcome in the near term, given that we do not expect the government to immediately replace the incumbent service providers and risk a public backlash if the new system fails to deliver. We think the market overreacted to the NIISe news,” it says.

Presently, MyEG’s various projects are grouped under the e-government concession. This concession was awarded in 2000 after an open tender. It derives its revenue from a small fee for every transaction made through its system.

In May 2015, the government agreed to pay the employers’ MyEG online FWPR processing fee of RM35 per foreign worker. In addition, MyEG earns additional revenue of RM70 per foreign worker from the sale of the compulsory foreign worker’s insurance annually.

Recall that in 2018, MyEG saw a massive sell-off of its shares on fears that the new Pakatan Harapan (PH) government would stop using the company’s e-government services. The government of that time also abolished the Goods and Services Tax in 2018, which was supposed to be a new major income stream for MyEG via its GST monitoring system.

It was reported that MyEG invested close to RM150 million on its GST programme.

Since then, the company has been making efforts to diversify its revenue contributions, including venturing overseas and into commercial sectors such as healthcare.

In its FY2021 annual report, MyEG had also highlighted how changes in the political landscape could impact its business. It said: “The ongoing changes that occur in politics, whether it be a change of parties in power or government policies themselves, do impact MyEG’s financial and non-financial value creation capabilities.”

Currently, MyEG is present in three countries — Indonesia, the Philippines and Bangladesh — which contribute 5% to 10% of its annual revenue.

While many see MyEG as being dependent on government concessions, currently, only 20% of its revenue is derived from the government and some 80% is from non-government-related products and services.

Wong assures that the diversification efforts that MyEG has put in place over the years will help to buffer the impact of any changes in government-related contracts.

“Since commencing operations in 2000, MYEG has grown and evolved significantly into the country’s premier home-grown digital services company with a diversified portfolio of product and service offerings across a variety of business segments.

“In this regard, revenue derived from commercial services today is four to five times larger than that derived from concession services. As such, any shifts in any government agency’s requirements are not expected to have any substantial adverse impact on the group,” he says.

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