Tuesday, January 4, 2011

The Good: My E.G. Services Bhd

This is a relative young company whois in an almost monopoly position in its ..well..own industry. Founded in 2000 its got itself listed in 2005. There aren't too much romance to talk about the history of this company so I'll skip that.

Business
My E.G., i think it probably stands for Malaysia E-Government services provider. Its business model is divided into 2 division: Government to Citizen (G2C) and Government/Enterprise Solution (GES). I think most of us are familiar with G2C especially during this "summons promotions" period. Anyway besides summons, they also provide services like driving theory test bookings, issuance and renewal of licences, electronic bill payment and payment ("EBPP") as well as online information services on electronic bankruptcy or liquidation status searches (E-Insolvency). All these can be done through the internet or its kiosk in the less developed area.

GES is not an internet based service but a software or system development as well as maintenance service provider to government and enterprises. Target market are the driving, insurance and financial institutions and others la.

Historically, G2C is the bigger contributor in revenue than GES. But sadly, individual contribution from them has not been disclosed ever since 2008.



Management
Apart from the MD,  the rest of the directors are what you need to be in a government business if you know what I mean. There is not much mentioned about the rest of the co-founder but I guess he does have a decent team with him - technically.

Service and product quality
I have only use this a couple of times. Services is okay (just click and pay, not much to comment about) but I've never tried their CS before to be honest. But everything can be done in decent internet speed apart from the "normal hours" when traffics are expected to be high till March. Product quality, yes there is, still a little annoying where i have to log in like a thousand times to pay for tickets. But overall better than most government sites.

Okay, that's about its business in 15 minutes - a pretty simple business.



Financial History
Well, if you look at the past 5 years, its revenue and operating income growth has been staggering at 34% and  50.3% respectively largely due to its acquisition of its competitor mySpeed Sdn Bhd. Since then sales growth has been quite impressive registering 19.8% in 2009 and 18.3% in 2010. Well, My E.G business model is pretty resilient during tough times so are we probably seeing revenue growth slows down? Erm..growth wise maybe but I do believe public awareness of My E.G. services is still pretty low. To be honest, their ads are really confusing and message delivery is mediocre at best.


Being in an e-commerce business, My E.G. gross margin is high in comparison to most industry, and it has improved steadily since 2005 from 31.6% to 59.8%. And they did use this margin to their advantage by increasing their A&P activities. I think this is a good strategic move but seriously the quality needs to be improved. This is probably the reason why sales efficiency has drop over the last 5 years from RM10.88 generated of every RM1 spend on SGA to RM5.93 in 2010.

My E.G has been conservative on its leverages on debt, keeping the D/E ratio below 1 although debt level has  increased to RM5mil in 2008, they are still in a very healthy position for the fact that they still have RM11mil in cash.

Receivables turnover rate is about 3.5 months in FY2010 which is likely to be contributed from GES division as G2C divisions transactions is either by cash (FPX) or credit cards. They should have no problem collecting these from the banks.

Overall, the financial condition of My E.G. is pretty strong and are more than capable to generate more than RM7.5 million of cash in the next few years. And they have a pretty decent ROE at 18% on average.



Valuation
Well, this is the tricky part. This is a young company with a huge prospect for growth and they have plan to continue to expand their services by commercializing various government services over the next 5 years. Well this expansion plan wouldn't take huge amount of capex, but their expansion on e-Services center and kiosk will. Problem is, it is unknown how much capex are they going to incur in the future and how much has the expansion from center and kiosk has contributed to its growth. So I'm taking a 3 stages guesstimate normalized  growth of 8.7% over the next 5 years before it declines steadily to terminal growth of 3%. (How I come out with 8.7%, well that's a secret). Capex should near its depreciation level at about RM6mil. That would give me a safe purchase price at about RM0.37. (NOTE: There are huge chances that I might have undervalue this company but it is better safe than sorry). So unless I get this sweeeeet deal, I would rather wait till it becomes more predictable. Sadly, somehow rather that name below has double the shares price.



But My E.G has great growth potential and 15 years contract with government has given it a monopoly position. Will it face contract termination of any sorts if there is a change in government? Nope, I don't think so as it does not make business sense to any government to do that. My E.G. business model benefits both sides as it does not only generates revenue to the company but its solution would have tackle much government administrative mess and inefficiency at the lower level. And the current higher SGA expenses is unlikely to remain at this level on the long run once its has own the public mind. My E.G. does sound like a great business to invest in, but we have seen how often mismanagement occur when a corporate is given a monopoly position in this country. Anyway things look find as for now. But I'll keep this very close under my radar.

1 comment:

JW said...

Government is like a curse word. Think i'll stay far far away from this one. Ekran? Sime Darby? Horror stories.