KUALA LUMPUR (Nov 21): Analysts have lifted their target prices (TP) and earnings forecast for MyEG Services Bhd, as third quarter results reflected progress of its newly launched Zetrix cross-border trade clearance platform, and improved margin on workforce streamlining activities.

MyEG’s earnings forecasts have been raised by an average of 1.84%, after a 4.2% increase in net profit in the nine months ended September (9MFY2023), even before excluding the one-off gain of RM61.9 million on the listing of Agmo Holdings Bhd the year before, and a 13.6% rise in revenue in the period.

Notably, the big push from Zetrix is largely on the back of the sale of its cryptocurrency at US$5 per unit, which analysts said will be used to settle transaction fees and gas fees in relation with the trade platform project and which they estimate had touched five million units this year.

They are nonetheless optimistic of Zetrix’s prospects, following a pilot for integration with China’s customs in June, in light of China’s plan to fully host its customs service on national blockchain by 2025.

The group, which earlier saw hiccups in the renewal of its immigration services contract, last month announced a two-year extension, as well as a separate three-year extension for its Road Transport Department (JPJ)-related services.

MyEG was the fourth top active counter at noon market break on Tuesday, with 45.77 million shares traded, compared with its two-month daily average volume of 37 million shares.

The counter touched 83 sen in the morning session, before paring some gains to still trade up 1.5 sen or 1.86% at 82 sen, giving it a market capitalisation of RM5.86 billion.

Maybank IB Research, in a note, raised its TP for MyEG to RM1.23, from RM1.16, on the back of a 3% to 10% increase in earnings forecast for FY2023 to FY2025, on optimism towards Zetrix’s prospects.

The boost is partly due to the sale of its Zetrix tokens. MyEG’s 5% quarter-on-quarter (q-o-q) increase was underpinned by a “30% sequential growth in decentralised finance segment contribution”, said Maybank IB, which doubled its Zetrix token sales forecast to five million units, from 2.5 million previously.

“Both ebitda (earnings before interest, taxes, depreciation, and amortisation) and core net profit margins also saw further quarter-on-quarter upticks (up three percentage points and one percentage point respectively) in the quarter, as management’s workforce downsizing initiatives gathered momentum,” it added.

UOB Kay Hian raised its TP for MyEG to RM1.21, from RM1.18, citing record high core net profit in 3QFY2023, which also marked MyEG’s seventh consecutive record core earnings, as well as Zetrix’s potential “if executions are on-point”.

It noted that Zetrix blockchain platform is on track to be commercially integrated with both Chinese and Philippines customs departments in 4Q2023 to 1Q2024.

“The key scope of services includes the issuance and authentication of the certificate of origin (COO), smart contract information verification and blockchain-based digital signing,” it said.

According to the research house, 16% of MyEG’s 3QFY2023 revenue of RM194.12 million came from the blockchain (DeFi) segment. The research house anticipates 5.5 million Zetrix tokens to be sold this year.

“We understand that the exchange has underwritten US$5 million Zetrix tokens,” it added.

Both Maybank IB and UOB Kay Hian are anticipating MyEG’s net profit margin to remain stable at 54%-57% in the financial years FY2023 through FY2025.

“While the earlier NIISe contract extension (which has since been terminated) and digital road-tax renewals, did cast some doubts on the status of MYEG’s relationship with the government, the impact on transaction volume seems to have been minimal, as seen in the past three quarterly results, with the group continuing to deliver record-high earnings,” UOB Kay Hian said.

Meanwhile, MIDF Research has maintained its TP on MyEG at 97 sen, as its 9MFY2023 earnings came at 80.4% of the research house’s full-year forecast.

“We see little interruption to MyEG’s revenue-generation capability at this juncture,” it said.

“While there has been organic growth from the existing services, Zetrix will drive the group’s next phase of earnings growth. This is especially so, with the upcoming trade facilitation service with China,” it added.