Listed in 2007 on Bursa Malaysia, MY E.G. Services Berhad (MYEG) provides a wide variety of electronic government services including renewal of foreign worker work permits and road tax as well as other services such as auto financing. In 2019, it obtained about three quarters of its revenue from Malaysia alone. It is present in the Philippines and Indonesia while its business expansion into Bangladesh is still in its nascent stage.
Its share price has yet to return to its glory days of between RM2 and RM3 prior to the 2018 Malaysian general election. As at the end of August 2020, its share price stood at RM1.49.
Here are 10 things I learned from the 2020 MYEG AGM and EGM:
1. In the past six years, the compounded annual growth rate (CAGR) of MYEG’s revenue and net profit stood at 40.1% and 43.2% respectively.
However, the financial periods of 2018 (FP2018) and 2019 (FP2019) actually span 15 months. The adjusted CAGR of its revenue and net profit will be relatively lower at 34.0% and 36.7% respectively, which are still solid.
A question regarding the frequent changes in the financial year end of MYEG in the past two years was raised but not answered.
Net profit decreased 37.0% year-on-year in 2018 because one-off impairments were made on the investments and capital expenditures-related Goods and Services Tax (GST) regime in Malaysia. GST was subsequently replaced by a sales and service tax in the same year.
2. During COVID-19, MYEG saw a significant increase in transaction volumes of its online products and services including motor vehicle road tax renewals during the Movement Control Order (MCO) period in Malaysia. Some other services such as drivers’ theory tests faced some constraints during this period. Meanwhile, its leasing businesses were not affected much by COVID-19 as there was no significant impact on its non-performing loans.
3. MYEG has ventured into several initiatives during COVID-19 such as Nak Beli e-commerce platform and Nak Makan food delivery platform to capture opportunities present in the market. Group Managing Director Wong Thean Soon will continue to invest in start-ups or businesses that complement the company. He sees MYEG as a technology company and looks forward to creating a similar ecosystem for the company like that of Tencent and Ant Financial (Alibaba).
4. The board had considered spinning off its foreign worker accommodation programme as a listed entity or REIT at the 2017 AGM and listing Stampede, its online debt collection system at the 2019 AGM. At this year’s AGM, the board said it has plans to list Jingle Magic (Beijing) Technology Co., Ltd. where it had invested about RM6.1 million on the Shanghai Stock Exchange Science and Technology Innovation Board (also known as the STAR market). All of these proposed listings have yet to occur.
5. When a shareholder asked about the company’s future growth plans, Wong said, ‘[There are] too many too count.’ The growth plans could emerge from e-government services, e-commerce, financial services leveraging on technology, blockchain and cryptocurrency as well as the online grocery business. Such plans are open to interpretation among investors.
6. Minority Shareholder Watch Group (MSWG) questioned the 32.1% year-on-year drop in revenue from commercial-based services rendered to RM271.8 million in 2019. The board only explained that the drop in revenue in this segment was offset by the 357.5% increase in the sale of commercial-based goods to RM182.4 million in 2019. The changes were merely due to the changes in ‘the classification of revenues derived from its offerings depending on the way in which products/services are offered’.
In my opinion, the answer was not very clear. There are benefits when it comes to attending physical AGMs (once the pandemic is over) as shareholders can seek direct and further clarifications to any doubts they have.At the same time, shareholders should also be given the flexibility to attend AGMs remotely at their convenience.
7. MYEG has been enjoying a special income tax rate as one of its subsidiaries has been granted the MSC Malaysia status which qualifies them for the pioneer incentive status. The subsidiary’s statutory income from pioneer activities has been fully exempted from income tax since 2016. The exemption is set to expire in 2021. MYEG will have to pay the normal corporate tax rate if the exemption is not renewed.
8. According to Wong, MYEG has filed to the Securities Commission to issue its own cryptocurrency. Wong believes the financial services industry will be disrupted by cryptocurrency instead of the conventional digital banking. Nevertheless, MYEG is actively pursuing after a digital banking licence from Bank Negara Malaysia. On a separate note, directors’ fees and benefits amounted to RM558,000 in FP2019.
9. An employee share option scheme (ESOS) was voted for during the EGM to incentivise employees. MSWG does not encourage companies to give ESOS options to independent non-executive directors as they govern and monitor the options allocation to employees and executive directors.
Initially, MYEG intended to make all of its directors eligible for the ESOS including its three independent non-executive directors. Also, if all directors were to benefit from the ESOS, none of these directors could be deemed independent parties when governing the options allocation process. The proposed allocation of ESOS options to all the directors was withdrawn given the unprecedented conditions.
10. The online temporary foreign worker permit services were extended for another three years as granted by the Ministry of Home Affairs. A shareholder asked about the effects of the political changes on the company. Wong in fact is not too worried about the several changes in government as he thinks the company’s track record speaks for itself.
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