Saturday, June 8, 2013

Is MYEG worth it?

I have liked and been very critical of MYEG. You can read through some of my articles which I have written here.  This is one company which have always been on my radar. Why? I know that this company will do well as it is now the undisputed e-government provider in Malaysia. There are no competitors that can go near the company. Hence, the limit is the type of services that they can offer as well as the market itself. As you look below, the company's growth is fantastic. In fact, for FY2013 it continues to grow further with its PAT expected to exceed RM35 million this coming closing financial year.

The performance is reflected in its share price as well. However post General Election, the company has in fact had a field run - registering 100% growth over a period of less than 1-1/2 month. There is no doubt that MYEG will continue to perform with the company continuing to get more jobs as long as it can successfully lobby for the services from the government.

However, the biggest mystery for the company is the payment of dividends, where it only paid 1.1 sen and 1.4 sen for its FY2011 and FY2012. This is supposed to be a company with very good cashflow. Its business is very similar to Jobstreet, very much scalable business with one of the main costs being advertisements. Revenue earned is almost going to be profit earned as the costs are all sunk costs.

I have tried looking at its free cash flow (FCF). See below:

Its FCF is not something to shout about, which is now I realise why it is not paying that high a dividend. Anyone that is trying to pitch EBITDA, I would say look at FCF as over here you can see the vast difference. I do not know when the company will slow down on its purchases of capex, as I thought it should have done that years ago as servers, storage etc. are supposed to be cheap. This is a company where the FCF is supposed to be higher than its Net Profit, but it is not - yet.

Again, I am not going to dispute the company's growth potential. Currently it is however trading at RM940 million market capitalisation. PE is close to 30x. P/FCF is still higher. Is it worth it? Or rather should I term it, is it worth it now?


reyes430 said...

A company which is having a low/negative free cash flow during its expansion period is alright, provided that the ability to earn through the capital invested is high,where in this case Myeg is having ROE >20%. One of the good example is Starbucks! Well, i not really sure if one can compare starbucks with myeg in term of their FCF. Actually i have read such statement through a book. So basically what do you guys think about this?

felicity said...

Seriously, MYEG is not a bad company but the capital expenditure at this stage is a bit worrying. there should not be that much of capex. It is a dotcom company. Starbucks is different as its capex are coffee machines, furniture etc. equipment, renovation etc.

MYEG's business is very different. A good comparison would be companies like JObstreet in malaysia and if you look at Jobstreet the capex is minimal.

rboSanwich said...

Some cakes are not for us.

Betronist said...

Felicity, any data showing how big its market penetration as at now? What will be the revenue if they are able to grab 50% market share (of renewal of road tax + paying summons)? Just wonder, since they are monopolying.

Majority of my friends do not use MyEG despite being aware with the services. The potential is still huge I have to say.

felicity said...

I do not but MYEG seems to have good future.