All eyes on listed service providers

“We believe MyEG has a steady earnings outlook for financial year 2023," says MIDF.

BURSA Malaysia-listed companies involved in e-government and IT services have shot onto the radar following news that immigration services and processes may be back fully under the Immigration Department’s management by 2025.

Companies in the e-services space tend to appeal to investors for their “steady income stream as the concessions awarded were often seen as lucrative”.

Of the lot, MyEG Services Bhd is akin to the “poster boy”, being the largest e-government services provider in Malaysia.

The group, which is majority owned by entrepreneur Wong Thean Soon, covers various services including road tax renewal, foreign worker permit renewal, summons checking and zakat payments.

However, news that MyEG could no longer be involved in the nation’s immigration system impacted investor sentiment in this space, with shares of MyEG being beaten down to over a two-year low.

According to MIDF Research, immigration services generate around 40% of MyEG’s income, including the renewal of foreign workers’ work permits which accounts for about 10% of the overall revenue and additional services such as insurance renewal and job matching services for foreign workers about 30%.

According to an analyst, the revenues could fall off only by the second half of 2025, following the completion and migration of the existing Malaysian Immigration System (MyIMMs) to the National Integrated Immigration System (NIISe) which is being developed by Iris Corp Bhd.

Maybank IB Research thinks MyEG “should still be able to continue its cross-selling business, although it remains uncertain how effective this would be through the new platform later”.

The research firm keeps its “buy” call but has cut the stock’s target price to RM 1.01 from RM1.37 before.

Similarly, MIDF maintains its “buy” call with an unchanged target price of RM1.

In a report yesterday, the research firm says it remains positive on MyEG on the back of its promising outlook in the Philippines, which has a population three times larger than Malaysia. MyEG ventured overseas in 2017, starting with the establishment of its joint venture in the Philippines. The group also has presence in Indonesia and Bangladesh.

MIDF notes that within five years, MyEG has established itself as the market leader in the Philippines, managing over 50,000 daily online transactions across the country. It also has more than 80,000 over-the-counter payment channels and points of sale locations across the Philippines and access to 150,000 outlets across the world through its relationship with Western Union.

In 2022, MIDF notes that MyEG’s annual transaction count in the Philippines grew 40% year-on-year, and more than doubled levels of 2020. As a result, the total transaction value for that country reached US$91mil (RM393.8mil) in 2022 – three times higher than the previous year.

“We believe MyEG has a steady earnings outlook for financial year 2023 due to consistent sales from its road transport businesses and initiatives such as the JPJ e-testing system and blockchain projects. We also like its initiatives pioneering into blockchain solutions, which is expected to pave the way for mid to long-term growth,” adds MIDF.

The research firm believes that the risk of being removed from immigration and transport-related concession services by 2025 has been “duly reflected in the recent weakness in its share price”.

Shares of MyEG slipped further yesterday, closing at 61 sen, translating to a market cap of RM4.5bil.

One of the early companies in this space is Heitech Padu Bhd, which is currently maintaining the MyIMMs, which was built in the 1990s. But the company’s earnings have not been all that great.

Iris Corp, meanwhile, has been grabbing attention for being a beneficiary of the NIISe. The company offers e-passports, e-identification cards, banking cards, transportation and other related trusted identification devices and equipment.

It has exposure outside Malaysia, having supplied e-passports to Nigeria, Guinea, Solomon Islands, Senegal and India. At yesterday’s close of 14 sen, Iris Corp’s RM456.2mil market cap still trails far behind that of MyEG.

NIISe predecessor was the National Immigration Control System or SKIN project. The RM3.5bil project, which was 70%-owned by Awanbiru Technology Bhd (formerly known as Prestariang Bhd) was meant to replace myIMMs. But the project was terminated, causing a sell-down in Prestariang shares in 2018.

Following this, AwanBiru had rebranded itself by shifting toward the direction of cloud computing and blue ocean strategies.

Other companies in e-government services are Datasonic Group Bhd, Dagang Nexchange Bhd (Dnex) and Scicom (MSC) Bhd.

Companies like Scicom also have a presence overseas and are involved in other areas like education. Meanwhile, Dnex currently does not provide any services to the Immigration Department but has maintenance contracts from agencies like the Inland Revenue Board. The company operates in three business divisions, namely, technology, energy and information technology, which generates a major portion of its revenue.