New venture for MyEG

by **Cals** Sun 24 May 2015, 17:18

New venture for MyEG

Saturday, 23 May 2015
By: TEE LIN SAY

Concessionaire buys stake in card payment and terminal company
IN a low key announcement that barely caught the attention of investors, MyEG Services Bhd quietly says it is entering the card payment and terminal business by acquiring a 55% stake in Cardbiz Holding Sdn Bhd for RM6.23mil.
For MyEG, which is a concessionaire for various Malaysia’s electronic-government flagship applications, this would appear to be a clear move to lessen its reliance on government contracts.
In fact, so prospective is MyEG over this new business segment that managing director T.S. Wong says the company would consider listing this division as a separate entity over the next few years.
“We will never enter a particular market space if we don’t believe that we can disrupt the existing model, more so for a mature segment like credit and debit card terminals,” says Wong.
He says it is MyEG’s stated target that its commercial services will be 70% of MyEG’s total business within the next three years, compared to about 25% of its overall business today. “This means that the commercial business will be at least twice the size of our government services. In the coming months, you will see a few more disruptive commercial product offerings from us catering to different market segments,” he says.
Wong said that MyEG will be adding new layers on top of the present payment business to offer consumers a new payment experience.
“Specifically, we will be offering a hybrid mobile and physical credit and debit payment solution. Our mobile solution is similar to Apple Pay, and the ConnectC mobile payment system as opposed to Square,” says Wong.
Certainly, the payment sector has been undergoing some sort of disruption.
The shares of GHL Systems Bhd and Managepay Systems Bhd have rallied by over 65% and 55% this year, not just on the Central Bank’s Payment Card Reform Framework, but also because there is a growing nescessity to go cashless, E-payments are very much on the rise.
GHL and Mpay are viewed as growth stocks. While Mpay trades at 91 times its historical price-earnings ratio (PER), GHL trades at 95 times.
So what is MyEG’s differentiator from the other players?
Wong said that the key distinguisher will be in MyEG’s hybrid mobile and physical solution compared to the present system which only accepts physical credit and debit cards.
It is due to its differentiated business model that Wong does not see MyEG competing with GHL, Mpay or even SoftSpace Sdn Bhd. In fact, he believes that MyEG will be capturing market share from the banks.
MyEG, which was one of the best performing stocks in 2014 and a major recipient of government online services contracts, has received some flak this year for the commotion created over its foreign workers permit renewal (FWPR) services. The issue has since been resolved.
The deal
On Thursday, MyEG told Bursa that its wholly owned subsidiary MyEG Capital Sdn Bhd is subscribing for 61.6 million shares or a 55% stake in Cardbiz for RM6.23mil. The vendors for Cardbiz are Khow Siong Long and Tan Seong Yeau
This consists of two agreements. The first is a conditional sale and purchase agreement where MyEG will acquire from the vendors some 57.32 million sares for cash of RM5.8mil, subject to terms and conditions.
There is also a conditional subscription agreement between Cardbiz as the issuer, MyEG Capital as the subscriber and the vendors, for the proposed subscription of 4.29 million Cardbiz shares for RM434,300 cash.
Wong said that MYEG is acquiring Cardbiz at single-digit historical and forward price earnings ratio, which is low compared to the multiples that public listed companies in this space are trading at.
“We believe the reason that we are able to acquire at this compelling value is that the founders, who still retain a significant minority stake understand that we will be bringing a lot of value and will be able to grow Cardbiz at an accelerated pace. In fact, we plan to list it as a separate stand alone entity in the next few years.
Cardbiz is an investment holding company with five key subsidiaries namely CardBiz Solutions Sdn Bhd, CardBiz Payment Services Sdn Bhd, CardBiz Technologies Sdn Bhd, Buy Now Asia Sdn Bhd (BASB) and Cardbiz Payment Services Pte Ltd.
The Cardbiz subsidiaries are primarily involved in providing information and communication technologies software solutions and system development, information technology and credit card terminal rental, trading in computer software, hardware and accessories and provision of e-commerce services, online purchase and redemption.
Based on the company’s audited earnings over the last two years, it generated profit of RM332,000 on the back of revenue of RM6.4mil in 2013. In 2014, earnings more than quadrupled to RM1.66mil on the back of revenue of RM11.99mil.
In the company’s stated rationale to Bursa, it said that the proposed acquisition is part of a strategic move by the MyEG Group to leverage on Cardbiz Group’s expertise in providing, marketing and trading of all kinds of information technology products and credit card terminal and other related activities
Wong said that It is has always been MyEG’s intention to offer commercial services which are complementary to its government offerings as a total solution package.
“The total solution we envisage for the retail and Food & Beverage segment comprises a few components, and the credit and debit cards aredefinitely one of the important pieces of this puzzle.
Wong added that Bank Negara’s move towards electronic payments is a macro shift that drives MyEG’s overall business. Entering this space is mainly because Wong sees the most potential in the cards business.
“We presently already have several services which cater towards the retail and food and beverage segment and as mentioned, the strategy is to bundle more products that work seamlessly with each other to offer a total solutions package for this market segment,” he said.
Wong believes that the major players like Apple’s iPay will focus on the major markets like the US and China, giving it the window to capture the markets in Asean.
For the second quarter to Dec 31, 2015, MyEG’s net profit increased 25.71% to RM14.09mil on the back of a 26.86% jump in revenue to RM29.77mil.
For the six month period, net profit was up 32.32% to RM26.13mil on the back of a 31.04% increase in revenue to RM57.49mil.