MARC Ratings has affirmed its rating of AA-IS with a stable outlook on MY E.G. Services Berhad’s (MYEG) Islamic Medium-Term Notes Programme of up to RM1.0 billion in nominal value.
The rating affirmation incorporates MYEG’s well-established position as a concessionaire for e-government services, diversified revenue from non-concession businesses, high operating margin and healthy cash flow generation. Moderating the rating are the operational and cross-border risks associated with new business ventures and the potential challenges in increasing widespread adaptability of MYEG’s blockchain platform for businesses.
MARC Ratings views positively MYEG’s ability to leverage the well-established MYEG brand to diversify successfully into non-concession related businesses. The brand is associated with key e-government services, in particular, the renewal of driving licenses for Jabatan Pengangkutan Jalan and foreign worker permits for Jabatan Imigresen Malaysia. Operating under government concessions which are generally for three-year terms, MYEG’s lengthy track record and established infrastructure mitigate renewal and termination risks. The rating agency notes that any impact on the group’s credit profile from termination is considered low as contribution to group revenue accounted for only a modest 2% as at end-September 2024 (2023: 4%).
Among MYEG’s non-concession businesses, its blockchain platform, Zetrix, has seen sharp y-o-y growth since commencing operations at end-2023. Designed to reduce administrative timelines for import- and export-related services between China and Malaysia, the contribution from Zetrix through the sale of digital assets and its services in October 2023 generated proceeds of RM94.6 million, and a further RM161.8 million in 1H2024. The likely geographical diversification of Zetrix to the Philippines could diversify revenue from this service. In addition to being the sole provider of this service to China, MYEG has first mover advantage and strong information technology infrastructure that provide a competitive edge. Nonetheless, MYEG’s further growth in this segment will rest on steadily increasing the adaptability of its blockchain platform.
MYEG also derives rental income from its foreign worker hostels. Currently, it has a hostel in Selangor and another in Melaka, housing 400 foreign workers each. MYEG also has four upcoming hostel projects, two in Selangor (Sungai Buloh – 1,500 pax), (Rawang – 1,500 pax), one each in Johor (Tanjung Langsat – 8,000 pax) and Penang (Batu Kawan – 8,000 pax). Cumulatively, this segment is expected to contribute around RM56.0 million p.a. to revenue upon commercialisation in FY2026.
For 9M2024, group revenue rose by 31.0% y-o-y to RM723.4 million, largely due to the contribution from the sale of Zetrix digital assets and its services. Operating profit margin was very strong at 74.9% while pre-tax profit increased by 54.2% y-o-y to RM520.8 million. Cash flow from operations remained strong at RM640.5 million. Total borrowings rose to RM1.3 billion from RM846.7 million as at end-2023, with the increase to be utilised for working capital. Cash and bank balances of RM575.2 million would provide headroom for funding working capital.