• 4Q23 results exceeded expectations on stronger-than-expected revenues from the blockchain segment, largely due to Zetrix token sales.

• More blockchain-related services that may kick off in FY24F could drive MyEG’s EPS growth ahead, in our view.

• Reiterate Add with a GGM-derived TP of RM1.10. The stock is trading at 12.7x FY24F P/E, which is close to 1.s.d below its 5-year average of 17x.

4Q23 results exceeded expectations

• MyEG’s 4Q23 core net profit grew a strong 64% yoy to RM148.9m, its highest quarterly profit ever, on a back of 35% revenue growth, driven by its blockchain segment. This more than offset the higher depreciation expenses (+15% yoy) due to ongoing capex for the blockchain infrastructure, as well as higher interest expenses (+331% yoy) due to higher total borrowings.

• FY23 core net profit grew 38% to RM487.5m and exceeded both our and Bloomberg consensus estimates, by 13% and 15% respectively, with the beat due to stronger- than-expected revenue growth from the blockchain segment.

• Net debt, however, jumped to RM762.5m as at end-4Q23 (net gearing: 35%), from RM430.2m at end-3Q23 (net gearing: 21%), due to the massive investments required for the development of the group’s blockchain infrastructure.

Operational highlights

• MyEG said the strong 4Q23 revenue growth of 35% yoy and 14% qoq can be attributed to the sale of Zetrix tokens, which is used for MyEG’s layer-1 public blockchain designed for government and enterprise level Web3 applications. MyEG participated in the initial coin offering (ICO) of Zetrix tokens, amounting to close to RM30m. We understand that 1.2m tokens were fully taken up during the ICO at a price of US$5 per token. Contribution from ZTrade, its new Malaysia-China cross-border customs trade platform, had yet to kick off in 4Q23. As per our checks with management, operational commencement for the platform is targeted for 2Q24F.

• The Zetrix token sales helped to cushion the decline in 4Q23 revenue from the immigration segment in which the group saw its foreign worker permit renewal service suspended from 15 Sep 2023 to 15 Jan 2024. We understand that the quantum of the revenue loss was less than 3 months’ worth, as MyEG still managed to process the permit renewal backlogs manually.

• Revenue from the transportation segment in 4Q23 was relatively stable, a key positive trend for the group, despite growing digital alternatives.

Maintain Add

• We maintain our Add call on MyEG due to its attractive valuation (12.7x FY24F P/E, at close to 1.s.d below its 5-year average of 17x) and potential EPS upside from its blockchain business. Our GGM-derived TP of RM1.10 is unchanged.

• Key downside risks include worse-than-expected decline in its transportation-related businesses, its new blockchain business not materialising, and non-extension of its current concession services. Potential re-rating catalysts are strong blockchain sales and acquisition of new concession services with both local and foreign governments.

Source: CGS-CIMB Research - 28 Feb 2024