By Stella Goh – Market Data Analyst | 27 February 2020  

Overview

MY E.G. Services Berhad (MYEG) is an MSC-status Malaysia-based investment holding company founded by Wong Thean Soon on 17 February 2000 and headquartered in Petaling Jaya, Selangor. MYEG is primarily involved as a service provider that engages in the development and implementation of e-Government services for the Malaysian Government and the provision of other related services of e-Government projects.

MYEG was listed in ACE Market in 2005 and successfully transferred onto the Main Market of Bursa Malaysia on 7 January 2009. The group operates more than 100 service centres across Malaysia by providing both e-Government and commercial services to agencies such as Dewan Bandaraya Kuala Lumpur (DBKL), Jabatan Insolvency Malaysia (JIM), Jabatan Pengangkutan Jalan (JPJ), Jabatan Pendaftaran Negara (JPN), Polis Diraja Malaysia (PDRM), Jabatan Imigresen Malaysia and others.

Business Model

MYEG builds, operates and owns the electronic channel to deliver services from various government agencies to Malaysian citizens and businesses. The overall e-Government initiatives focus on allowing citizens to retrieve information and perform transactions with various services suppliers in a convenient and timely manner by utilizing the Electronic Services (e-Services) platforms.

The company’s business can be categorized into two strategic business divisions. For example, Government to Citizen (G2C) and Government / Enterprise Solution (GES). G2C services refer to services such as motoring driving theory test bookings, issuance and renewal of licenses, electronic bill payment as well as online information services such as checking of traffic summonses and electronic bankruptcy or liquidation searches. While GES are non-Internet based services such as software and enterprise solutions, system development and maintenance as well as services rendered are at the e-Services Centres. The other services include renewal of foreign worker permits, Zakat payments, Kuala Lumpur City Hall assessment and summons payments.

Financial Review

Based on past 5 financial years’ revenue chart above, the group’s revenue grew year-on-year (y-o-y) from FY2014 (+43.65%), FY2015 (+28.80%), FY2016 (+99.08%), FY2017 (+31.76%) to FY2018 (+51.47%). On a CAGR basis, MYEG has grown 49.03% based on 5 years. The increase in revenue was mainly attributed to over 80% from commercial services with the remaining 20% coming from the e-Government services fuelled by demand growth.

MYEG has recorded a RM128.999 million increase in gross profit, translating to a growth of 45.43% from RM283.959 million in FY2017 to RM412.958 million in FY2018. Based on 5 years of CAGR basis, the group’s gross profit has grown 49.77%.

The increase in gross profit for MYEG is due to the strong uptake for the group’s services, ranging from concession services such as online foreign workers work permit renewal and rehiring programs from the Immigration Department and online road tax renewal for the Road Transport Department (JPJ). The ancillary and commercial services like online auto insurance renewal and foreign worker insurance renewal also further contributed to the group’s profits. (Source: Annual Report 2018).

The Profit After Tax (PAT) of MYEG has a decrease of 37.03% from RM200.048 million in FY2017 to RM125.970 million in FY2018. The PAT was moderated by an impairment of RM95.45 million due from an associate company and an impairment of equipment amounting to RM76.29 million in relation to the abolishment of the Govt Service Tax (GST) regime prior to the introduction of the Sales & Service Tax (SST) regime. (Source: Annual Report 2018).

Cash Flow Statements

The net cash from operating activities has provided a positive cash flow of RM168.853 million in FY2018 as compared to RM84.804 million in the previous year indicating that the company is healthy and has enough cash to be used for business expansion.

The net cash from investing activities in FY2018 (-RM65.239 million) was mainly due to the purchase of Property, Plant and Equipment (PPE) of (RM47.485 million), purchase of other investment (RM19.579 million), acquisition of investment properties (RM6.443 million), purchase of joint venture (RM2.726 million) and advances to a joint venture (RM13,000). The negative cash flow indicates that the firm is investing in its business for growth. (Source: Annual Report 2018).

The net cash from financing activities in FY2018 (-RM125.386 million) was mainly due to the dividend paid to shareholders (RM61.308 million), purchase of treasury shares (RM52.804 million), repayment of term loans (RM19.358 million), repayment of hire purchase and finance lease obligations (RM2.676 million) and repayment of revolving credit (RM1.2 million).

Is the company able to pay back its liabilities?

Based on liquidity ratio calculation, MYEG has a current ratio of 1.6032 times in FY2018 indicating that the company does not face any liquidity issues as it is capable of paying back its liabilities if any unforeseeable circumstances occur. MYEG is able to do so by using current assets such as inventories, financing receivables, trade receivables, other receivables, deposits & prepayments, amount owing by a joint venture, current tax assets, fixed deposits with licensed banks, cash and bank balances amounting to RM358.142 million.

Prospect and Challenges

MYEG has successfully developed an extensive artificial intelligence (AI)-powered coronavirus risk profiling system in a partnership with China’s Phoenix Travel Worldwide Co., with capabilities that include historical geolocation and anomaly tracking for foreign visitors. The system will be offered to the governments of Malaysia and Philippines. (Source: The Edge Markets, 19Feb2020).

According to the company, the system encompasses analytics of a vast number of available data points, including visitors’ previous known whereabouts as well as heart rate and blood pressure readings crossed referenced against public transportation ridership and exposure to the locations with incidences of infections. (Source: The Malaysian Reserve, 26 Feb 2020).

MYEG‘s subsidiary in Indonesia, PT Cartenz Inti Utama (Cartenz Group) has secured additional government mandates to roll-out its tax monitoring system to 30 more cities, marking an expansion of the program that has already been undertaken actively in Jakarta. The project tenure ranges from one year to three years and it is renewable upon expiry. (Source: The Edge Markets, 14Jan2020).

Since the unveiling of the joint venture in 2018, the group has started the implementation of real-time monitoring of business transactions for tax computation purposes, with installations in retail merchant premises and presently ongoing in Jakarta under a pilot program offered at no charge. Following the successful implementation in Jakarta, the group has recently been contracted by the governments of seven other provinces in Indonesia to deploy, on a chargeable basis, the tax monitoring system to cover a total of 30 cities. (Source: Digital News Asia, 14Jan2020)

Rating System

Return on Equity (ROE) = Average

Revenue [5 years CAGR] = Good

Net Earnings [5 years CAGR] = Good

Basic Earnings per Share (EPS) [5 years CAGR] = Good

Interest Coverage = Good

Quality of Earnings = Average

Insight

Based on the calculation of Discounted Earnings Model, MYEG has an intrinsic value of RM1.622. The current share price of MYEG is RM1.18 which makes it an undervalued stock (as at 26 Feb 2020). MYEG has a beta of 1.462 (500 days) indicating that the share price is more volatile than the current market. Based on the computation of Compound Annual Growth Rate (CAGR), MYEG has an expected market return of 4.96%.

In conclusion, MYEG has achieved an outstanding performance in FY2018 with the highest revenue and gross profit over the past 5 years. It’s prospect remains bright as the expansion of tax monitoring system to more regions in Indonesia represents an important milestone for MYEG, not only in the strengthening of its position as a leading e-Government services provider in Indonesia, but also in the widening of its footprint in the country’s retail sector.

Disclaimers

The research, information and financial opinions expressed in this article are purely for information and educational purpose only. We do not make any recommendation for the intention of trading purposes nor is it an advice to trade. Although best efforts are made to ensure that all information is accurate and up to date, occasionally errors and misprints may occur which are unintentional. It would help if you did not rely upon the material and information. We will not be liable for any false, inaccurate, incomplete information and losses or damages suffered from your action. It would be best if you did your own research to make your personal investment decisions wisely or consult your investment advisor.

By Stella Goh – Market Data Analyst | 19 February 2020  

Overview

Foundpac Group Berhad (FPGROUP) is a Malaysia-based investment holding company founded in 2015 and headquartered in Bayan Lepas, Penang. FPGROUP is primarily involved as an import-export company that has made a significant impact in the manufacturing and engineering industry.

FPGROUP was listed on Bursa Malaysia’s Main Market on 29 December 2016. FPGROUP nurtures alliances with a reputable network of vendors and contractors in order to provide an unequalled standard of excellence. The group has acquired accreditation with ISO 9001 as proof of their quality and commitment to excellence.

Business Model

FPGROUP is primarily involved in the design, development, manufacturing, marketing and sale of precision engineering products such as stiffeners, integrated circuit (IC) test sockets, hand lids, and related accessories as well as manufacturing and sale of laser stencils. Examples are final test stiffeners, probe and card stiffeners, accessories for stiffeners, high pin court sockets, fine pitch sockets, high power or high frequency sockets, tri-temp test sockets, module test sockets and toggle clamp hand lids.

FPGROUP’s customers are primarily large multinational semiconductor manufacturers, outsourced semiconductor assembly and test companies (OSATs) and printed circuit board (PCB) design houses as well as fables semiconductor companies. All FPGROUP’s products are distributed within Malaysia as well as exported to countries including Singapore, China, Hong Kong, Taiwan, France and the UK.

Financial Review

FPGROUP has achieved a revenue growth of 26.49% from RM35.534 million in FY2018 to RM44.946 million in FY2019. Based on the past 5 years CAGR basis, the gross profit growth was 8.27%.

The increase in revenue from the Asia market was mainly contributed by existing and new customers in China, Hong Kong and Taiwan for both precision engineering and laser stencil segments. While the increase in revenue contributions from North America and Europe markets were mainly contributed by existing customers in North America and Germany for the precision engineering segment. (Source: Annual Report 2019)

FPGROUP has recorded a RM6.073 million increase in gross profit, translating to a growth of 35.76% from RM16.983 million in FY2018 to RM23.056 million in FY2019. Based on 5 years CAGR basis, the group’s gross profit has grown 12.71%. The increase in gross profit was due to the hike in revenue generated by precision engineering segments, namely stiffeners and related accessories.

Based on Annual Report 2019, the precision engineering segment recorded a surge in revenue from Asia, North America and Europe markets by RM2.761 million, RM2.223 million and RM2.088 million respectively as compared to FY2018. Besides, the laser stencil segment also generated a hike in revenue from other Asian markets by RM1.947 million.

The Profit After Tax (PAT) of FPGROUP rose 58.08% from RM8.011 million in FY2018 to RM12.664 million in FY2019. On a CAGR basis, the Profit After Tax (PAT) grew by 6.57% which was in line with the growth in revenue and gross profit.

Cash Flow Statement

The net cash from operating activities has provided a positive cash flow of RM9.650 million in FY2019 as compared to RM5.406 million in the previous year indicating that the company is healthy and has enough cash to be used for business expansion.

The net cash from investing activities in FY2019 (-RM5.208 million) was mainly due to the purchase of Property, Plant and Equipment (PPE) of RM6.758 million. The negative cash flow indicates that the firm is investing more in its business for growth. (Source: Annual Report 2019).

The net cash from financing activities in FY2019 (-RM5.175 million) was mainly due to the dividend paid to shareholders of the company (RM5.186 million) and dividend paid to non-controlling interests (RM262,500).

Is the company able to pay back its liabilities?

Based on liquidity ratio calculation, FPGROUP has a current ratio of 12.86 times in FY2019 indicating that the company does not face any liquidity issues as it is capable of paying back its liabilities if any unforeseeable circumstances occur. FPGROUP is able to do so by using current assets such as inventories, receivables, prepayments, current tax assets, cash and cash equivalents amounting to RM53.491 million. However, this may also indicate that the company is not efficiently using its current assets or its short-term financing facilities.

Prospect and Challenges

According to the group Chief Executive Officer Ong Cheng Hoon, FPGROUP plans to produce parts for the automotive industry next year and it has installed a new production line to manufacture the critical automotive parts. The group was in the process of applying for the IATF 16949 certification which will qualify it as a first and second tier producer of critical automotive parts. The certification is expected in 1H 2020 and commencement of commercial operations in 2H 2020. The negotiations as a key supplier of critical automotive components with European and Asian carmakers are expected to be concluded in FY2020. (Source: StarBiz, 16 Dec 2019).

According to The Star Business, FPGROUP expects its first-half performance for the financial year ending 30 June 2020 to improve by double digit percentages, driven by the implementation of 5G infrastructure and transmission towers. The group Chief Executive Officers Ong Choon Heng told StarBiz that for the first half of 2020, more than RM25 million worth of test sockets, stiffeners and laser stencils would be shipped to semiconductor test equipment customers in United States, Europe and China compared to about RM21 million achieved in the corresponding period of the preceding year. (Source: StarBiz, 23 Sep 2019).

The test sockets and stiffeners are attached to semiconductor test equipment to check integrated circuits and printed circuits boards used in a wide range of 5G hardware, electronic home appliances, consumer electronics and semiconductor parts. According to Ong, the rollout of 5G technology is expected to hit US$2.7 trillion by the end of FY2020. (Source: StarBiz, 23 Sep 2019).

FPGROUP’s stencils enable the electronic manufacturing services (EMS) companies to manufacture at a lower cost. Moving forward, the group will continue to focus on the high-mix and low-volume product business model. The group’s strategy is to compete with the other test socket and stiffener manufacturers in terms of quality so that they can price their products higher to generate better margins. (Source: StarBiz, 23 Sep 2019).

Rating System

Return on Equity (ROE) = Average

Revenue [5 years CAGR] = Average

Net Earnings [5 years CAGR] = Average

Basic Earnings per Share (EPS) [5 years CAGR] = Average

Interest Coverage = NIL

*Interest Coverage is NIL because there is no interest income incurred. (Source: Annual Report 2019)

Insight

Based on the calculation of Discounted Earnings Model, FPGROUP has an intrinsic value of RM1.495. The current share price of FPGROUP is RM0.95 which makes it an undervalued stock (as at 18 Feb 2020). FPGROUP has a beta of 1.784 (500 days) indicating that the company is more volatile than the current market. Investors may face higher risk. Based on the computation of Compound Annual Growth Rate (CAGR), FPGROUP has an expected market return of 5.22%.

In conclusion, FPGROUP has achieved an outstanding performance in FY2019 with its highest revenue and gross profit over the past 5 years. FPGROUP’s prospect remains bright as the rollout of 5G in China, Europe and the United States is expected to generate demand for integrated circuits for use in the hardware of 5G transmission towers. The company is expected to perform well in the future as the Internet of Things (IoTs) needs a lot of high-end equipment to test and automate hence creating a strong demand for semiconductor test equipment.

Disclaimers

The research, information and financial opinions expressed on ShareInvestor.com website are purely for information and educational purpose only. We do not make any recommendation for the intention of trading purposes nor is it an advice to trade. Although best efforts are made to ensure that all information is accurate and up to date, occasionally errors and misprints may occur which are unintentional. It would help if you did not rely upon the material and information on this website. We will not be liable for any false, inaccurate, incomplete information and losses suffered from your action. It would be best if you did your own research to make your personal investment decisions wisely.

By Stella Goh – Market Data Analyst | 12 February 2020  

Overview

Kejuruteraan Asastera Berhad (KAB) is an established Malaysia-based electrical and mechanical engineering company founded in 1997 and headquartered in Kuala Lumpur. KAB specializes in providing comprehensive and one-stop solutions in electrical and engineering services for main contractors, project owners and property developers operating in Malaysia. 

KAB was listed in ACE Market on 17 November 2017. KAB holds a Class A certification (highest electrical contractor certification) from Energy Commission Malaysia and a Grade 7 (highest grade) license from Construction Industry Development Board (CIDB). 

Business Model 

KAB covers all aspects of electrical, mechanical and associated engineering services for both commercial and residential buildings. 

KAB offers installation, testing and commissioning of electrical systems, electrical distribution systems, communication & information technology networks, generator sets, street lighting, lifts and escalators, fire protection, extra-low voltage (ELV) systems, air-conditioning and mechanical ventilation systems. 

The company also derived additional revenue from sales of cables, switches, trunking, pipes and electrical accessories which are required for projects to its sub-contractors. 

Financial Review 

Based on the past 4 financial years of revenue chart above, the group’s revenue grew year-on-year (y-o-y) from FY2015 (+52.93%), FY2016 (+6.92%), FY2017 (+23.01%) to FY2018 (+21.43%). On a CAGR basis, KAB has grown 25.01% based on 4 years. The increase in revenue was mainly attributed to 54.6% from commercial projects, 43.6% from residential projects and 1.8% from others.

KAB has recorded RM3.415 million increase in gross profit, translating to a growth of 15.55% from RM22 million in FY2017 to RM25.4 million in FY2018. Based on four years CAGR basis, the gross profit has grown 31.29%. The increase in gross profit was due to the rise in demand for electrical & mechanical engineering services specifically in new construction and property projects. 

The Profit After Tax (PAT) of KAB rose 26.58% from RM6.8 million to a new high of RM8.6 million in FY2018. On a CAGR basis, the Profit After Tax (PAT) grew by 21.91% which was in line with the growth of revenue and gross profit. 

Cash Flow Statement 

The net cash from operating activities has obtained a positive cash flow of RM1.4 million in FY2018 as compared to RM2 million in the previous year. The decrease in net cash from operating activities was mainly due to the increase in working capital requirements and taxes paid for the group’s ongoing operations. Even though the cash flow is lower in FY2018, the company still has enough cash for business expansion. 

The net cash from investing activities in FY2018 (-RM867,196) was mainly due to the purchase of Property, Plant and Equipment (PPE) of (RM901,144) and acquisition of subsidiary unquoted shares (RM1,052). The negative cash flow indicates that the firm is investing more in its business for growth. (Source: Annual Report 2018) 

The net cash from financing activities in FY2018 (-RM267,314) was mainly due to fixed deposits pledged as securities (RM5.1 million), dividend paid (RM3.2 million), repayment of bank’s factoring (RM2.5 million), repayment of term loans (RM1.9 million) and repayment of finance lease liabilities (RM376,691).  

Is the company able to pay back its liabilities?  

Based on liquidity ratio calculation, KAB has a current ratio of 1.8544 times in FY2018 indicating that the company does not face any liquidity issue as it is capable of paying back its liabilities if any unforeseeable circumstances occur. KAB is able to do so by using current assets such as contracts, trade and other receivables, deposits & prepayments, amount due from subsidiary companies, deposits with licensed banks, cash and bank balances amounting to RM84.1 million.  

Prospect and Challenges 

KAB has achieved an order book estimated at RM350 million, translating into 2.5 times revenue in FY2018 after winning the job for three blocks of serviced apartment and hotel at Lot 162, Sungai Besi. (Source: TheEdge, 10 January 2020). 

KAB has won a RM20 million electrical installation services contract from Kerjaya Prospek Group Bhd for a hotel, office and serviced apartment project in Kuala Lumpur. The project known as Bloomsvale located at Jalan Klang Lama, which comprises two 53-storey blocks and another 25-storey block has commenced since last week and is expected to be completed by 1 November 2022. (Source: TheEdge, 30 January 2020). 

In early 2018, KAB has set up KAB Technologies Sdn Bhd (KABT) to provide project management and consultancy for upgrading M&E systems for buildings to save on energy costs. KABT will use the data collection devices and the Internet of Things (IoT) such as sensor network and communication modules to gather the building usage data. (Source: TheEdge, 21 January 2020). 

In FY2019, KABT has also entered an 80:20 joint venture (JV) with Resources Data Management Asia Sdn Bhd to develop new technology solutions as well as identify strategic business developments and revenue recognition. (Source: TheEdge, 21 January 2020).  

KAB is also venturing into solar energy generation via the acquisition of 30% stake in Leverage Edge Sdn Bhd (LSB), where the partnership is expected to boost its chances next year in Large-Scale Solar 4 (LSS4) tender. Apart from the energy efficiency solutions and solar energy generation businesses, KAB also provides combined heat & power co-generation, waste heat recovery solutions and is currently participating in some tenders. (Source: TheEdge, 21 January 2020). 

Rating System 

Return on Equity (ROE) = Average 

Revenue [4 years CAGR] = Good 

Net Earnings [4 years CAGR] = Good 

Basic Earnings per Share (EPS) [4 years CAGR] = Good 

Interest Coverage = Average 

Insight 

Based on calculation on Discounted Earnings Model, KAB has an intrinsic value of RM2.529. The current share price of KAB is RM1.960 which is in the range of fair value. (Based on 11Feb2020). KAB has a beta of 0.917 (500 days) indicating that the company is less volatile than the current market. Investors may face a lower risk. Based on the computation of Compound Annual Growth Rate (CAGR), KAB has an expected market return of 5.25%. 

In conclusion, KAB has achieved an outstanding performance in FY2018 as the revenue, gross profit and net profit after tax increased year-on-year basis. KAB has actively sought joint ventures and is looking to invest in the Internet of Things (IoT) which can help to enhance its position in the electrical and industry sector. Based on intrinsic value calculated, KAB has 29.03% upside potential in share price.  

Disclaimers 

The research, information and financial opinions expressed on ShareInvestor.com website are purely for information and educational purpose only. We do not make any recommendation for the intention of trading purposes nor is it an advice to trade. Although best efforts are made to ensure that all information is accurate and up to date, occasionally errors and misprints may occur which are unintentional. It would help if you did not rely upon the material and information on this website. We will not be liable for any false, inaccurate, incomplete information and losses suffered from your action. It would be best if you did your own research to make your personal investment decisions wisely.