This article first appeared in The Edge Malaysia Weekly on September 25, 2023 - October 1, 2023

THE share price of MyEG Services Bhd has held steady, notwithstanding the recent brouhaha over the renewal of foreign workers’ permits by the company.

Is this a reflection of the confidence that investors and analysts have in the e-government services provider?

Analysts tell The Edge the earnings impact from MyEG’s current suspension of its foreign worker permit renewal services portal is expected to be minimal.

The stock plummeted 36% to 61 sen apiece in early February from 96 sen, following news that the Ministry of Home Affairs would fully handle all immigration services and processes, including those currently held by vendors like MyEG. It gradually returned to the 80 sen level early this month and last Thursday, the counter closed at 82 sen, valuing the company at RM6.13 billion.

For context, confusion over the validity of MyEG’s concession with Putrajaya for immigration-related services arose when Kota Melaka member of parliament Khoo Poay Tiong, on Sept 7, alleged in parliament that MyEG’s contract with the Immigration Department had been suspended, yet the company continued to accept fees for the services through its website.

MyEG had been providing the online renewal service for Pas Lawatan Kerja Sementara for foreign workers, including foreign domestic maids, since 2013. The last concession awarded three years ago was scheduled to end in May. MyEG then said it received a notification letter on July 4 from the home ministry to confirm that the Ministry of Finance agreed to an extension of the concession.

“[The online renewal service for foreign workers] has been operating uninterrupted, including during intervening service extension periods in 2015, 2020 and 2023. Extensions, upon formalisation, are typically dated from the day after the expiry of the previous tenure,” MyEG group managing director Wong Thean Soon tells The Edge.

Amid the complaints about its services, MyEG last Tuesday said it had stopped accepting payments on its website from Sept 15 until further notice, while it finalises the terms of the immigration services concession with the government.

Analysts whom The Edge spoke to last week point out that MyEG continued to operate pending formalisation of the said concession because stopping the services would be disruptive.

“The government side needs time to draw up the paperwork. However, as the current cessation (since Sept 15) has been an issue raised in parliament, there is no choice but to halt services temporarily and expedite the signing of the concession. It is believed the services are to resume by this week,” says an analyst who does not want to be named.

Analysts expect the impact on earnings of MyEG’s suspension of its foreign worker permit renewal services portal will be minimal, as the official renewal of the concession will soon be formalised.

UOB Kay Hian Securities (M) Sdn Bhd investment analyst Jack Goh believes that it is very unlikely MyEG will lose the contract, given the group’s comprehensive system and deep-rooted presence in the e-government domain.

“In a worst-case and unlikely scenario that MyEG loses its immigration concessions, which include transactions such as foreign workers’ visas, work permit applications and renewals — should they fall fully back under the Immigration Department’s control — obviously, there will be some impact on earnings,” Goh tells The Edge.

In any case, he believes MyEG will continue to provide its current ancillary immigration services such as foreign worker insurance, job matching, accommodation or other bundle services such as doorstep delivery, which the immigration department does not provide.

He notes that around 80% of MyEG’s earnings from the immigration segment are related to its ancillary services while an approximate 20% come from the application and renewal of foreign workers’ permits.

While the explanation from Wong and the analysts helps to allay concerns about the company’s business continuity, patrons are not spared from encumbrances wrought by the disruptions of service. Employers whose applications are stuck at MyEG will need to go to the Immigration Department to resolve these issues, according to Deputy Minister of Home Affairs Datuk Shamsul Anuar Nasarah.

“MyEG could be more transparent about the details of its concession with the government. It is about how the matter is conveyed to the public and stakeholders. This could prevent much of the operational issues posed to applicants,” says the analyst who declines to be named.

MyEG has in the past expressed its intention to reduce its reliance on the Malaysian government, and grow its business abroad. While the group has a presence in the Philippines, Indonesia and Bangladesh, the contributions to group revenue are not reflected in its 2022 annual report.

“In recent years, we have been investing significantly in pioneering Web 3 technology and we expect Zetrix, our layer 1 blockchain, to be the main driver of growth moving forward.

“The services we are introducing on Zetrix are targeted towards the international market. These include, for example, the recently launched ZTrade service, a cross-border trade facilitation service launched in collaboration with the General Administration of Customs China (GACC) for the digital lodgement of certificates of origin as well as other trade-related certificates,” Wong says, adding that he expects Web 3 to become a major revenue contributor for the group.

MyEG’s Zetrix blockchain’s initial coin offering (ICO) is slated for the end of this month.

“The official launch of its certificate of origin (COO) authentication service alongside China Customs is slated for Oct 23 and represents the maiden commercial deployment of the Zetrix platform. Contributions from both Malaysian and Philippines transactions are expected to drive up demand for Zetrix tokens, underpinning our assumptions of a good subscription rate for the ICO,” says UOB’s Goh, who has a “buy” call on the stock with a target price (TP) of RM1.18.

Data from Bloomberg shows that seven out of eight analysts covering MyEG have a “buy” call on the stock — one is “neutral” — with a consensus TP of RM1.05.

“It would take Zentrix some time, at least a year or two, to match the revenue that MyEG currently derives from the Malaysian government,” says the analyst who does not want to be named.

MyEG’s net profit in the last five years grew from RM201.5 million in the financial year 2017 (FY2017) to RM398.7 million in FY2022, translating into a compound annual growth rate (CAGR) of 14.6%. Revenue grew from RM371.2 million to RM721.9 million in FY2021, dipping to RM651.1 million in FY2022, for a CAGR of 11.9%.

For the second quarter ended June 30, 2023, MyEG’s net profit rose 26% to RM111.6 million from RM88.6 million last year on the back of a 14.3% year-on-year rise in revenue to RM184.9 million.

In a filing with Bursa Malaysia, MyEG attributed the improvement in financial performance to contribution from newly launched services on its Zetrix blockchain platform and sale of Zetrix tokens, as well as a one-off recognition of fair value gain in investment as a result of the listing of its 25.8% equity interest in Agmo Holdings Bhd. 

Save by subscribing to us for your print and/or digital copy.

P/S: The Edge is also available on Apple's App Store and Android's Google Play.