MARC Ratings has assigned a preliminary rating of AA-IS to MY E.G. Services Berhad’s proposed Islamic Medium-Term Notes (IMTN) programme of up to RM1.0 billion in nominal value with a rating outlook stable.
The assigned rating it added reflects the company’s established position as a longstanding concessionaire for e-government services, underpinned by its strong IT infrastructure. The rating also considers the steady growth of its non-concession-related businesses, its high operating margin, and healthy cash flow generation. Moderating the rating are market and operational risks associated with its two new key businesses, namely its blockchain platform and foreign worker accommodation projects.
Its concession services are largely related to the operations of two key government agencies: Jabatan Pengangkutan Jalan (renewal of driver’s license, etc) and Jabatan Imigresen Malaysia (renewal of foreign worker permits, etc), accounting for about 98.8% of concession revenue of RM60.4 million in 2021. MARC notes that while concession revenue has been fairly steady, its contribution to consolidated revenue has declined to about 8% in 2021 (2017: 21%) as revenue from its commercial businesses has grown sharply to RM661.4 million (2017: RM294.8 million).
Going forward, the company’s new venture, the Zetrix blockchain platform, has been forecast to be its key earnings driver. The platform, aimed at facilitating transparency and increasing delivery efficiency for supply chain management, among other uses, will also be integral to the Malaysia Blockchain Infrastructure, a government-initiated project to expedite further digitalisation.
The initial drawdown of up to RM500 million under the IMTN programme is projected to be utilised for the blockchain and foreign worker accommodation projects.
Total borrowings of about RM241.1 million as at end-1H2022 will increase to about RM740 million as a result of the initial drawdown, translating to an increase in gross debt-to-equity (DE) ratio from 0.14x to 0.43x. Assuming full drawdown of RM1.0 billion, gross DE ratio would increase to about 0.73x. The group has maintained a healthy liquidity position, with cash balances of about RM223.3 million as at end-1H2022, which would moderate the increase in its leverage position. The rating agency also draws comfort from the demonstrated shareholder support through equity private placements, which raised RM211.5 million in 2020 and RM208.5 million in 2021, which has bolstered the group’s liquidity position.
For 1H2022, MYEG recorded revenue and pre-tax profit of RM323.6 million and RM174.7 million. Operating profit margin remained strong at 55.1% while cash flow from operations (CFO) amounted to RM159.6 million. CFO from existing businesses would remain supportive of CFO debt and interest coverages to be well within the rating band.
