Outstanding Financial Results but Volatile Share Price
Over the previous two years, MyEG Services Bhd (KL: MyEG) has seen an average 24% increase in net profit. Despite a rise in trading volume and favorable analyst ratings, the share price of the company has not kept pace with its financial expansion.
Large-scale Investment in the Blockchain Platform Zetrix
MyEG has invested more than RM1 billion on its blockchain platform, Zetrix, during the last two years. Zetrix’s main focus has been on ZTrade, its trade document digitizing service. Although RM1 billion might seem like a big sum of money for a Malaysian company, Wong Thean Soon (TS Wong), co-founder and group managing director of MyEG, clarifies that this is actually quite little in the context of the global tech industry. Wong points out that significant international IT companies frequently spend tens of billions of US dollars developing global platforms, which is what MyEG hopes to accomplish with Zetrix.
Sales of Tokens Fuel Earnings Growth
It’s interesting to note that Zetrix digital token sales, as opposed to ZTrade platform transaction fees, have been the main source of MyEG’s recent earnings increase. Investors are a little confused about MyEG’s financial statements because the Malaysian business accounting landscape is still developing with regard to digital assets. According to the minutes of MyEG’s 23rd Annual General Meeting (AGM), a number of shareholders expressed concerns about digital assets and the Zetrix platform’s development expenditures being amortized.
Novel Accounting Methods for Digital Resources
MyEG included a new line item under current assets in its 2023 annual report: digital assets totaling RM301.76 million, which are described as consisting of cryptocurrency. The revenues from the sale of Zetrix tokens and the acquisition of other digital assets, including stablecoins, valued at fair market value, are included in these assets, per the AGM minutes. One billion Zetrix tokens have been issued by MyEG thus far, although these are not shown in the financial accounts until they are sold.
A Novel Approach to Amortizing Blockchain Development Expenses
MyEG has chosen a special technique to spread out Zetrix’s development expenses. MyEG is employing a percentage-based approach based on the quantity of tokens sold relative to the total amount created, as opposed to the conventional straight-line approach, which distributes costs equitably across the asset’s useful life. The reasoning for this is because the development cost represents the sum of money required to create the blockchain and make token minting possible. As a result, the related development expenses are deducted from the token sales revenue.
Accessing the Blockchain Market in China
MyEG’s entry into the Chinese blockchain market started with a nine-year-old investment in Bubi (Beijing) Network Technology Co Ltd. Bubi was listed in KPMG’s 2023 China Fintech 50 Report and named one of Forbes China’s 50 Most Innovative Companies since its launch in 2015. Zetrix’s Layer 1 blockchain was created by Bubi and is interoperable with Xinghuo BIF, China’s national public blockchain infrastructure.
Increasing Transaction Volumes and Strategic Uses
Applications from Zetrix, such as ZTrade, offer blockchain-verifiable credentials for exports to China from Malaysia and the Philippines. Since its introduction, ZTrade has logged several thousand transactions, and as compared to conventional ways, it has streamlined the document credential process by up to 50%.
Ownership Structure and Partnerships
Zetrix Sdn Bhd is the company that owns the intellectual property for Zetrix. MyEG owns 56% of the company, while Bubi Network Technologies owns 30% and Star Jewel Capital Inc. owns 14%. Wong highlights that Bubi Network Technology still owns “almost 10%” of MyEG and highlights how important Bubi was in creating the Zetrix platform.
Continuing the Zetrix Partnership
MyEG, Bubi, and Star Jewel recently extended their cooperation for an additional five years with the goal of strengthening their partnership. Wong does concede that widespread Zetrix adoption will take some time. For the time being, token sales—which accounted for RM127.65 million, or 17% of group revenue, in FY2023—will determine how much the company’s profits expand.
Prospective Investments and Monetary Planning
MyEG intends to make large annual investments in Zetrix for the foreseeable future, totaling RM500 million. In spite of this, Wong guarantees that their capital expenditures will stay within the operating cash flow of the business and that they want to maintain a positive cash flow without taking on more debt. MyEG’s e-government services continue to provide a large portion of this funding; in FY2023, they accounted for over 70% of group revenue.
Setting Up for International E-Service Growth
In addition, Wong emphasized the strategic significance of Zetrix’s cooperation with Chinese Customs and its involvement in the national blockchain development of Malaysia, working with Mimos, a government organization under the Ministry of Science, Technology, and Innovation. In the future, MyEG hopes to compete with platforms such as TradeNet in Singapore and HSBC’s blockchain-powered letter of credit systems by offering e-services to other governments.
Good Financial Outcomes for 1HFY2024
MyEG’s sales increased by 32.7% to RM475.24 million in the first half of FY2024, while its net profit increased by 47.76% to RM321.37 million. The company did not give a full breakdown of these data, but it was stated that the services from its blockchain platform and Zetrix token sales were responsible for this rise. With such a large investment in Zetrix, MyEG is still committed to promoting growth and acceptance in this dynamic digital environment.
