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?

The little things that make Jobstreet preferred over MYEG

Both companies I like for dividends and growth prospects. They are probably 2 of the better dotcom companies that are still up and running, after the dotcom crisis in Malaysia. (MYEG was formed after the crisis)

Having survived, dotcom companies such as Jobstreet and MYEG have very strong cashflows while their operational costs are very manageable. Jobstreet is the No.1 jobs website in Malaysia with commendable operations overseas (Philippines, Singapore), while MYEG is the No 1 e-government site in Malaysia. Both are very profitable with continuous good growth prospects.

MYEG's (Price : RM0.645) current PE based on most recent Audited Report is around 17.5x with PAT at RM22.13 million. Jobstreet (Price : RM2.17) registered a PAT of RM43.7 million for FY2011, hence valuing them at 15.9x PE.

Tax

Currently, MYEG only pays 3.6% tax due to it getting tax exemptions from being a MSC status company. The tax exemption was until 17 July 2011. However as I noticed from its latest management accounts as at 31 Dec 2011, the company is using another subsidiary for it to enjoy continuous tax exemptions. (Wondering how is this possible)

Jobstreet on the other hand paid around 23.8% tax as they no longer qualifies for pioneer status.

Development costs


MYEG's policies with regards to R&D. They capitalised some parts of their development costs.

MYEG's R&D accounting policies

What is the impact? This accounting measure for FY2011 probably improved the company's PAT by around RM1.2 to RM1.3 million. See below.

On the other hand, Jobstreet expensed all its R&D expenses.

Jobstreet's R&D accounting policies

Both practices are perfectly fine within MASB 4 (Malaysian and International Accounting Standards).

However, you can see that MYEG is benefiting still from tax benefits and from its accounting policies, it registers a higher accounting profits. On the other hand, Jobstreet probably is more attractive as a company in terms of current valuation as its pays full taxes and expensed all its R&D costs.

In fact, I am still not happy on how MYEG can transfer its tax benefits to another subsidiary (if its true).

Happy Investing!

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I like MYEG but...

This one company caught my eyes even before the days where it got involved in sponsoring the EPL or some of the football shows on ESPN. To me it has solid business, a brand that is getting noticeable, a winner in the e-Government space. Revenue is ever growing, so is its profitability.



This company has the trait that will make me continue to lookout for its performance. In my mind, the business it is in will continue to grow and the fact that its competitors are far behind. Name me its competitors in the online e-government space - I could not even remember any name (that speaks for itself).

BUT...

Nevermind the price at 20 - 22x PE, there is this little thing which sometimes make me a little wary: - 2 of its directors are UMNO's people and in the director's profile, they are not shy of telling that they are UMNO people. In reality, I have not come across such things in any other companies' directors profile except for this company. Usually, political figures do not reveal their party's name in the director's profile but why MYEG's does that I am having a suspect. Is it revealed by mistake or it actually does it on purpose, I do not know. The 2 person are Datuk Dr Norraesah and Raja Munir Shah (check it out in the director's profile page in the Annual Report as reproduced below)

Profile of Dr Norraesah



You see, Dr Norraesah is in several public listed board, but as far as I know MYEG is the only one the UMNO word is revealed. Are they trying to reveal that UMNO is Government and without UMNO people there is no e-Government for MYEG? Then be very afraid.

Profile of Raja Munir



I tell you why investors have to be wary of this, although it is common for political figures to involve themselves into business. (No prizes either for second guessing how MYEG got its license to be in the business where they are today.)

Suspect expenditures can however happen due to the need to contribute for political funds. You see political people do not really work in the companies they are representing. They just get you the contract or license for your business. And their reward are not little. If you are an investor in the business they are in, be afraid of this might happen - and as an investor you might lose out to them - especially UMNO people. Of course, you would say without them, MYEG will not be where it is today. True. Then it is about ethical investing. Getting assistance from Government is allright, but through unfair advantage? That is not the trait of a winning company. Winners do not need that to be winners. Only monopolies need that. Also, in my encyclopedia of investing, these types of companies usually do not give a damn to its shareholders. Look at Vincent Tan, Syed Mokhtar - they have some of the greatest businesses in Malaysia, but do they look like they care? Good businesses they keep to themselves. Not so good businesses, they share with you and I. I would not be surprised that much of their political contributions derive from the public companies they led - companies that you and I probably have shares in. How do you account for that?


Let me give an example. Have you ever seen monopolies being run well in Malaysia? Example, BERNAS (under Syed Mokhtar). Not that Syed Mokhtar does not own well-run companies. Look at Honda. Just that there is this little thing about monopolies that is a suspect to an investor.

p.s. I am not against politically linked companies, but in this particular case I am only afraid of unaccountable expenses which may go overly excessive. MYEG however has proven its consistent performance over the last 5 years - which is a positive. For me, let's continue to monitor this company. It has a good business. That's for sure

Serious Investing!