This article first appeared in The Edge Malaysia Weekly on December 4, 2017 - December 10, 2017

MyEG Services Bhd, via wholly owned MyEG Credit Sdn Bhd, is moving into the leasing of vehicles.

Leasing is a type of finance that allows companies or individuals to use and control an asset, in this case motor vehicles, for an agreed term while paying rent — which covers the depreciation of the asset — and interest — which covers the capital cost. The ownership lies with the lessor at the end of the term.

MyEG managing director Wong Thean Soon tells The Edge that the group started the business a couple of months ago.

“It’s a new major category … both Alibaba (Group Holding Ltd) and Tencent (Holdings Ltd) have multibillion-dollar subsidiaries in this space,” he says.

MyEG found out, after extensive checking, that no licensing is required for the business, which simplified matters considerably, Wong adds.

He admits that one of the key initiatives MyEG is looking at involves private leasing, which could be a lucrative proposition.

According to automotive industry sources, private leasing is new to Malaysia. It entails leases of three years at least and requires the leasee to have the option to buy the vehicle or transfer the lease to another vehicle.

At present, most leases involve corporations and are centred around high-end brands, such as Mercedes-Benz or BMW, while individuals can only rent the vehicles for short periods.

“If MyEG focuses on more affordable cars, the business could really take off,” an executive with a foreign car company says.

An official with a local conglomerate, who is well-versed in leasing and the automotive industry, sees MyEG’s private leasing business generating “hundreds of millions in revenue if it kicks off”.

He highlights that in leasing, the company, in this case MyEG, undertakes the maintenance of the vehicle and even the renewal of road tax, which would make it ideal for those not looking to own a depreciating asset such as a car.

“Actually, that is the direction the world is moving towards with the advent of ride sharing and ride hailing, where there is no need for car ownership. With Grab and other ride-hailing apps available, there is not much incentive to own a car … much like an asset-light model,” the executive with the foreign car company comments.

“It makes sense for a Grab driver to have his maintenance taken care of and once the lease expires, to switch to a new car. The older cars could be leased out in the outstation areas, maybe at a cheaper rate. MyEG already has a strong database with its existing renewal of road tax business, and it will have the first-mover advantage, which is a big plus in this sort of business.”

Need for deep pockets

According to industry players, MyEG’s capital outlay may be high from buying the cars but the business is lucrative.

In its first three months of FY2018 ended Sept 30, MyEG chalked up a net profit of RM52.78 million on revenue of RM98.04 million. Its cash and cash equivalents stood at RM180.48 million while its long-term and short-term debt commitments were at RM111.02 million and RM21.86 million respectively.

MyEG also had retained profits of RM238.86 million in the same period.

In its notes accompanying its financials, MyEG says it will “continue to roll out new services that will enhance the lives of Malaysians while meeting the objectives of the government to increase online payments as an efficient method to transact”.

While Wong did not elaborate on Alibaba and Tencent, in July, Guazi ershouche, a China-based customer-to-customer used-car transaction platform, launched a “micro programme” on Tencent’s social network and chat platform WeChat, offering auto financing and in-house credit scoring, among others. The pre-credit assessment system is supported by Tencent-backed private bank WeBank as well as Baidu Finance.

Alibaba’s unit Taobao has a subsidiary — Xianyu — which officially opened its first offline “experience outlet” for used cars in Hangzhou and announced plans to open a further 500 such outlets in the coming three years.

Locally, other than banks, companies such as ELK-Desa Resources Bhd have a strong presence in the hire-purchase market but this business is different from private leasing, which will evolve into a new business altogether.

Nevertheless, ELK-Desa Resources chalked up a net profit of RM11.01 million on revenue of RM50.53 million in the six months ended Sept 30. The hire-purchase segment contributed RM35.3 million to revenue and RM16.05 million in profit before tax, which is almost 70% of revenue and more than 100% of profit before tax.

It also helps that Malaysia is the largest passenger car market in Southeast Asia. Last year, 580,124 units were sold and the Malaysian Automotive Association is projecting a 1.7% year-on-year total industry volume growth to 590,000 units.

With banks tightening their lending rules, MyEG may be at the right place at the right time.

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