This article first appeared in The Edge Malaysia Weekly on March 18, 2024 - March 24, 2024

MyEG Services Bhd, which emerged as a substantial shareholder in HeiTech Padu Bhd with a 14.4% stake last Monday, says its interest in the IT business solutions provider is not limited to the National Integrated Immigration System (NIISe) project — for which there is an ongoing tender.

“Although both companies are involved in the provision of services to the government, there is no overlap, as each company is focused on completely different aspects of e-services.

“Both companies will work together to explore opportunities to participate in projects that are in line with our competencies and objectives, and this will not be limited to the NIISe project,” the spokesperson tells The Edge in response to the question of why the e-government services provider acquired a substantial interest in HeiTech Padu.

The spokesperson adds that the acquisition of a strategic interest in Heitech Padu could pave the way for both companies to collaborate in a more strategic and concerted manner.

“In fact, both companies have long been complementary to each other, as demonstrated in the provision of services to agencies such as JPJ (Road Transport Department) and the Immigration Department, where the underlying systems are developed and maintained by HeiTech Padu, while MyEG is focused on delivering services to end-users,” he explains.

Last week, several shareholder changes at HeiTech Padu coincided with its share price touching an all-time high of RM3.15 on Tuesday. The counter has already had a good run since the beginning of this year, more than tripling in value since Jan 2 at 89 sen.

MyEG Services bought two tranches equivalent to a 14.4% stake from the open market and via direct business transaction for a total of RM31.25 million, or average prices of RM2.134 and RM2.15 per share.

Its filing with Bursa Malaysia says the move is part of a “strategic investment”.

It is unclear, however, who the sellers of HeiTech Padu shares were, as their identities were not disclosed on Bursa.

The market has it that the two blocks are believed to be linked to businessman Datuk Eddie Ong Choo Meng, Datuk Chiau Beng Teik and his son Chiau Haw Choon.

According to HeiTech Padu’s FY2022 annual report, as at March 23, 2023, Ong had a 2.33% stake, or 2.36 million shares; Beng Teik had a 4.45% stake, or 4.5 million shares; and Haw Choon had a 4.13% stake, or 4.18 million shares.

When The Edge reached out to them, Ong confirmed that he had sold his HeiTech Padu shares to MyEG, but Haw Choon did not respond.

HeiTech Padu’s annual report also shows that AHAM Asset Management Bhd holds a 4.74% stake.

Last week, MyEG continued to mop up more shares in HeiTech Padu after the announcement, raising its stake in the company to 16.08%, a Bursa filing on March 13 shows.

A day later, HeiTech Padu saw another new substantial shareholder in the form of former PKR Perak chief Datuk Farhash Wafa Salvador, with a 15.9% stake via his vehicle Rosetta Partners Sdn Bhd. Farhash is also the chairman of 7-Eleven Malaysia Holdings Bhd.

Several market observers reckon that the changes in the shareholdings in HeiTech Padu could be related to the upcoming award of the NIISe project, which is set to integrate the border management systems under the various agencies of the Ministry of Home Affairs and replace MyIMMs.

In late February, The Edge reported that HeiTech Padu was one of the three companies shortlisted to take on the RM1 billion NIISe Project. The other two contenders shortlisted are understood to be Dagang NeXchange Bhd and Theta Edge Bhd.

What is interesting is that back in late January, HeiTech Padu was one of the counters that was hit when almost 14 counters of mid-to-small capitalisation companies hit limit-down for several days. The counter quickly recovers a few days later and continues with its upward momentum since then.

The emergence of MyEG and Farhash in HeiTech Padu coincided with the spectacular run in its share price.

At its close of RM2.60 last Friday, HeiTech Padu is valued at 36.44 times FY2023 earnings. After two years of net losses, HeiTech Padu returned to the black in FY2023, reporting a net profit of RM7.22 million.

MyEG acquired the shares at average prices of RM2.134 and RM2.15 each.

UOB KayHian analyst Jack Goh tells The Edge that while MyEG’s acquisition price for HeiTech Padu’s stake was slightly more expensive than the industry average, he sees it as “reasonable”, as the latter is a top contender for the NIISe project.

At RM2.14 per share, he says, the acquisition price is valued at a PER of 30 times, based on HeiTech Padu’s FY2023 net profit of about RM7.2 million, which works out to earnings per share of 7.1 sen.

“This comes at a slight premium to the industry mean of 25 times but is deemed reasonable, given that it’s a huge block of 14.4%. Moreover, Heitech Padu is one of the three contenders which have good chances of clinching the NIISe project.

“If HeiTech Padu is able to secure the NIISe project, which was valued earlier at RM1.16 billion, earnings will see meaningful improvement in the coming years, besides other synergies. If this materialises, the acquisition price that MyEG paid is deemed reasonable,” Goh, who covers MyEG, tells The Edge.

Having said that, he reckons that the acquisition is not just focusing on the NIISe project but on strengthening both companies’ positions in the e-government space.

“The acquisition bodes well for both MyEG and HeiTech Padu, and both companies can unlock better synergistic value, as HeiTech Padu has provided mainly the back-end system for various government agencies for more than 25 years,” he adds.

“Meanwhile, MyEG’s business model is more on front-end e-government services such as commercial ancillary services to end-users.

“[These different business models] may allow both companies to secure more e-government projects or enhance the quality of various agencies’ systems in future.”

Government agencies that use HeiTech Padu services include the National Registration Department, JPJ and the Inland Revenue Board.

This is not the first time that MyEG has been linked to Heitech Padu. In December 2018, MyEG co-founder and managing director Wong Thean Soon, better known as T S Wong, and chairman Datuk Norraesah Mohamad emerged as substantial shareholders in Heitech Padu with a 5.38% stake, or 5.45 million shares, via their investment vehicle Asia Internet Sdn Bhd.

Less than three years later in September 2021, however, Asia Internet ceased to be a substantial shareholder of Heitech Padu. It is unclear whether Wong has a direct stake in Heitech Padu.

Currently, Wong has direct and indirect interests of 28.87% in MyEG through Asia Internet. Other companies he is affiliated with include Excel Force MSC Bhd, Cuscapi Bhd, AGMO Holdings Bhd and MyTech Group Bhd, Bloomberg data shows. 

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