MyEG Services (RM0.46), Malaysia's dominant e-services provider, is witnessing strong growth for its government-to-citizen (G2C) services, particularly for its road tax renewal service. It is also expanding its network and market presence rapidly, and has an exciting pipeline of new services to be rolled out, which will cement its longer-term growth prospects.

Road tax renewal service
Launched in April 2008, the road tax renewal service is the key to MyEG's medium-term growth. The company has two main business models for the new service - an online and a kiosk-based one, with a bonus being ancillary premiums for motor insurance.

Currently, road tax is renewable at JPJ offices for free, or at selected post offices for a RM2 charge. The main hassle of such "over the counter" road tax renewal is the requirement to produce the vehicle registration card as proof of ownership.

As this document is often kept in the bank, the process involves two separate time and petrol consuming trips. With MyEG's services, the registration card is not needed, as its system is interlinked with JPJ's for cross-checking. 

Not surprisingly, public response to this service has been very positive - and gaining momentum. We understand the on-line service (via its website: www.myeg.com.my) has attracted over 1,800 transactions per day in the first quarter of 2009 - up from 1,000 in the previous quarter. The number of motor insurance premiums sold daily has also increased from 40 to about 60.

The kiosk-based service for road tax renewal will serve financial institutions and their clients. MyEG has piloted this scheme successfully with Maybank and a number of insurance companies. The company now has six insurance companies tied up for the service.

These kiosks are specially designed to facilitate road tax renewal transactions, as road tax discs are of a specialised plastic material. MyEG has placed a kiosk in each branch for the bank or insurance company's staff to handle renewal and printing of the discs for their clients. The kiosks cost about RM80,000 each and are wholly borne by MyEG, with the fees split between the two.

These kiosks will provide MyEG with an additional physical network and customer base - via banks and insurance companies, and enable the financial institutions to also offer a value-added service to their customers.

Expanding market presence
MyEG's physical network - comprising e-service centres and e-service kiosks - has grown very rapidly, both from expansion as well as the acquisition of MySpeed in 2007. This will increase its market coverage nationwide, particularly in the East Malaysian states of Sabah and Sarawak, where it is currently under-represented.

The e-service centres cater largely for the JPJ driving licence theory tests, which are conducted online at the e-service sites. The e-service centres also hold a number of e-service kiosks, mainly for online transactional services and now increasingly, the specialised kiosks for the road tax renewal services.

From 19 e-service centres in FY04, the number grew to 26 in FY05, 27 in FY06-07, 54 in FY08 (after including MySpeed) and 62 in the first half of financial year 2009 (1HFY09). Another 38 centres are in the process of being set up, mainly in Sabah and Sarawak.  The number of e-service kiosks has also risen exponentially - from 13 in FY04-05 to 14 in FY06, 65 in FY07, 140 in FY08 and 207 in 1HFY09.

New services in the pipeline
MyEG has been increasing its product range. From four service suppliers in FY04, it now has seven with JPJ-related services being the main earnings driver. The number of services offered has also increased from six in FY04 to 19 at present.
 
The company has a pipeline of new products to roll out in the next few years, which will cement its medium- and longer-term growth prospects. In 2009, the company plans to roll out the online transfer of motor vehicle ownership, plus a number of services from Polis DiRaja Malaysia (PDRM). These include online police reports and email notification of police summonses.

For 2010, MyEG plans to roll out more JPJ-related services such as e-application of vehicle registration numbers and e-application of new motor vehicle registrations, and other services such as e-courts and online renewal of maids' permits with the Department of Immigration.

Further out in 2011, it plans to introduce online services for the Department of Statistics and Ministry of International Trade and Industry (MITI), among others. 

Strong earnings growth ahead
We maintain our BUY recommendation for MyEG, given its strong growth prospects, recession-proof qualities and high levels of profitability. At RM0.46, MyEG's shares are trading at 12.6 and 9.1 times FY09-10 earnings, respectively, which are not excessive relative to its prospects.

We expect net profit to rise by 49% to RM22 million in FY09 and 38% to RM30.3 million in FY10. The strong growth will be driven by the road tax renewal service and insurance premiums, while the e-insolvency services will continue to provide steady growth.

The underlying market for its services - the number of vehicles and drivers, insurance premiums needed, etc - is very large, resilient and many are recurrent. Demand is also supported by the growing popularity of online services and transactions for convenience and cost reasons.

Note: This report is brought to you by Asia Analytica Sdn Bhd, a licensed investment adviser. Please exercise your own judgment or seek professional advice for your specific investment needs. We are not responsible for your investment decisions. Our shareholders, directors and employees may have positions in any of the stocks mentioned.