Setting up a Zetrix blockchain network

  • MyEG has entered into an MOU with CAICT to develop an international extension of China’s Xinghuo BIF through Zetrix backbone and supernodes.
  • The Zetrix network will be targeting trade flow between RCEP member countries, which is valued at nearly US$2.5tr annually.
  • This is an exciting new growth strategy for MyEG to prepare for a borderless future. Reiterate Add, with an unchanged RM1.25 TP (26x CY22F P/E).

Setting up a Zetrix blockchain network targeting RCEP countries

● MyEG has entered into an MOU of Strategic Cooperation with the Institute of Industrial Internet and Internet of Things of the China Academy of Information and Communications Technology (CAICT) for the international extension of China’s national blockchain network, Xinghuo Blockchain Infrastructure and Facility (Xinghuo BIF), by introducing backbone and supernodes outside China to be known as Zetrix. To recap, MyEG had entered into an exclusive JV with China-based Bubi Technologies Co Ltd (Bubi) on 21 Sep 2021 to develop the Zetrix blockchain system. We learnt that Bubi is also the core protocol developer for Xinghuo’s BIF.

● Xinghuo BIF is China’s national blockchain infrastructure that aims to promote digital transformation in the country and add value to digital assets in the future. CAICT officially launched Xinghuo BIF on 30 Aug 2020. We gathered from management that major Chinese corporations, such as SAIC Group, An Steel, New Hope Group and Sinotrans Logistics Ltd, are among pioneer companies utilising Xinghuo BIF in China.

● Among key use case applications for Zetrix include trade traceability, digital identity, supply chain management, smart financing and digital trade. MyEG is targeting corporations and countries within the Regional Comprehensive Economic Partnership (RCEP) regions to utilise Zetrix as a gateway to China’s Xinghuo BIF network to maximise the potential of free trade agreement by leveraging on blockchain technologies. MyEG highlighted that its Zetrix backbone and supernodes will be fully compatible with Xinghuo BIF and that it will provide a competitive edge for local and regional companies trading with Chinese counterparts and each other. For its pilot use case application, the group plans to utilise the Zetrix blockchain network for tracking of goods and supply chain management.

● We gathered that there are multiple income stream potentials for MyEG from the Zetrix blockchain network. For example, MyEG will earn a fee for supply chain traceability as it will generate one QR code for each product. In addition, platforms like Zetrix also earn a gas fee for each transaction within the network. Gas fee is the amount owed by users to the network to complete the transaction. MyEG plans to leverage on its developers network to develop more applications for potential customers.

● We think it is too early to assess the potential earnings contribution from the Zetrix blockchain system to MyEG’s earnings, but it is important to highlight that Zetrix will not be limited to trade flows between Malaysia and China; instead, it will be targeting the trade flow between RCEP members. Hence, we are excited with the growth potential, given that RCEP is the world’s largest free trade agreement, covering 30% of global GDP. Overall, management believes the new venture will position MyEG at the forefront of blockchain technology for a borderless future.

Reiterate Add with a RM1.25 TP

● We make no changes to our earnings forecasts, pending more details on the monetisation potential for Zetrix. Reiterate Add rating, with an unchanged RM1.25 TP, still based on 26x CY22F P/E, which is 0.5 s.d. above its 5-year mean of 23x. New income stream from the blockchain JV, an extension of tax incentives and expansion of e-government digital service offerings are potential re-rating catalysts for the stock. Meanwhile, delays in tax incentive approval from the government and lack of new egovernment services introduced are downside risks for the stock.