This article first appeared in The Edge Financial Daily on June 22, 2018
My EG Services Bhd
(June 21, RM1)
Maintain add with a target price (TP) of RM1.22: On Wednesday, My EG Services Bhd (MyEG) announced that its associate I-Pay MYEG Philippines Inc (IPMPI) has entered into a memorandum of understanding with the Cagayan Economic Zone Authority (Ceza) to allow IPMPI to be registered as a financial technology solutions business enterprise licence applicant to act as a payment processor and payment gateway business enterprise for offshore transactions in the Philippines, specifically within the Cagayan Special Economic Zone and Freeport.
This is potentially positive for MyEG. We understand Ceza is the second regulator in Asia to legalise and regulate cryptocurrency exchanges, the first being Japan.
We learnt from MyEG that IPMPI is expected to operate a payment gateway for the cryptocurrency exchanges operating in the Philippines, where people can deposit money into their crypto accounts using their credit cards. MyEG expects IPMPI to get 0.2% of the credit card fund inflows.
Depending on how fast and how big the cryptocurrency exchanges take off in the Philippines, this could be a huge business for IPMPI over the next few years. While it is still too early to make any earnings assumptions for IPMPI, we are excited about the potential.
MyEG set up its 40%-owned Philippine joint-venture (JV), I-Pay Commerce Ventures (IPCV) in March 2017 to provide e-government services. This JV provides e-government services for the police, the labour department and some cities in the Philippines. Within a year, it is already handling around 20,000 e-transactions daily. IPCV charges around 40 US sen (RM1.60) per transaction and annual revenue it currently generates is only around US$1.8 million.
What could be exciting for IPCV over the next few months is the potential tie-up with a regional bank to offer microloans to Philippine citizens. We understand the average microloan in the Philippines is around US$1,000.
MyEG believes the demand for microloans will be strong, and targets a 20% to 30% take-up rate from customers of IPCV, with IPCV potentially getting US$25 commission per microloan (which is 2.5% commission on a US$1,000 loan). We keep our forecasts and TP, still based on a technology sector 2019 target price-earnings of 15 times. A potential rerating catalyst is MyEG winning a contract to monitor Malaysia’s upcoming sales and services tax. A downside risk is liberalisation of the domestic car road tax and foreign worker working permit renewal services, which may open MyEG’s niche segment to other players. — CGSCIMB Research, June 20