MYEG - The Henry Singleton of S.E.A. + ZETRIX: China's Toll Bridge for International Blockchain Payments
An Outsider CEO & Optimal Capital Allocator + the Toll Bridge of China's International Blockchain Payments. 20% LT Earnings CAGR For 19x PE... Sounds Too Good To Be True?
The share price of e-govt concessionaire MYEG fell by -20% to-date since early-Feb on news that the NIISe immigration concession could be withdrawn — sparking panic that its other govt concessions could also potentially be affected.
However, most of MYEG’s future growth is unlikely to come from Malaysia — it’s in fact expected to come from the intercontinental ZETRIX blockchain network in China, where MYEG earns a “gas fee” on every transaction. The company is initially targe ting trade flows between the 14-member RCEP nations.
This turns MYEG into somewhat of a toll road alá Coinbase or Visa/Mastercard for all inbound/outbound blockchain transactions with China going forward — something which could become increasingly valuable as the share of crude oil trade in RMB increases, and if the e-RMB gains significance amidst increasing CBDC prominence.
If you recall, Buffett’s favorite business analogy when referring to the Newspapers of his era was that of a toll bridge. MYEG stands to become one of the Neo-Newspapers of Asia in the next generation.
Peering through MYEG’s financial statements reveals another value investor — its founder T.S. Wong is a staunch practitioner of Optimal Capital Allocation, drawing close parallels to the famed Outsider CEO of Teledyne, Henry Singleton !
“This means that MYEG’s management is truly treating Equity funding as an Optimal Capital Allocation consideration — they opportunistically issue Equity when the cost of equity is sufficiently low (i.e. when share prices are high), with the express intention of buying it back later at a higher ROE (i.e. when share prices have fallen).
In other words, MYEG’s management isn’t treating equity issuance as a permanent source of capital, the way most management teams do. Rather, they’re treating it like debt with the express intention of repaying it — by issuing shares at high market prices when Mr Market gives them a bargain (i.e. low yields), and likewise “repaying debt” when Mr Market gives them a bargain (i.e. via share repurchases).
This is once again very reminiscent of how Henry Singleton did not consider Teledyne’s shares as being sacred, but rather as a matter of Optimal Capital Allocation— with the decision-making bottleneck being obtaining an attractive price, rather than the exact medium of funding.”
Click the link below to download the PDF of Henry Singleton’s business profile at Teledyne!
Many value investors will be familiar with the legendary capital allocator Henry Singleton — whose conglomerate Teledyne racked up a 17.9% CAGR over 25 years (i.e. 53x return), and who served as one of the inspirations behind Buffett’s conglomerate approach to investments under Berkshire Hathaway. Singleton was the first business magnate profiled in William Thorndike’s seminal book The Outsider CEOs — and was unique in his leadership blueprint which held firm to only one business philosophy — Optimal Capital Allocation.
For instance, Singleton built Teledyne into a gigantic conglomerate by issuing overvalued Teledyne shares during the conglomerate heydays of the 1960’s — to acquire highly cash-flow generative businesses. Subsequently, he used the FCF from those acquisitions repurchase Teledyne’s shares as its share price collapsed amidst the bear market of the early-70’s — before leaping by >1,000% from 1974-78, as the market recognized its per share value after he bought back 75% of outstanding shares. When Teledyne’s share price recovered amidst the bull market of the late-70’s, Singleton pivoted away from Teledyne’s infamous “no-dividend” policy and suddenly started paying large dividends to shareholders as that became the best use of shareholder capital.
This seemingly volatile behavior demonstrates Singleton’s singular business focus — Optimal Capital Allocation, with little care for form over function. His outsized personal stake in Teledyne of 7.8% afforded him the ability to ignore the whims of the market, and allocate shareholder capital opportunistically in the best interests of Teledyne’s shareholders. He was also famous for having one rule for investments — all new projects or acquisitions must yield a minimum ROA of 20% (that’s Apple-level performance criteria). No less a figure than Warren Buffett has proclaimed:
“Henry Singleton has the best operating and capital deployment record in American business.”
And so it was with great interest when I stumbled upon an incarnation of Henry Singleton practicing the same capital allocation patterns in South East Asia — a local Chinese businessman who goes by the name of Wong Thean Soon, one of the Top 50 richest people in Malaysia with a net worth of ~USD 400M. TS Wong, as he is affectionately known here, is the founder of the listed government concessionaire MYEG — one of Malaysia’s great business growth stories, and a local household name by virtue of its omnipresent government concessionaire kiosks dotting the country.
In early Feb 2023, MYEG made local headlines after its share price fell by -30% overnight. This happened after the recently-installed reformist Anwar government announced that it would be rolling back the outsourcing of government services to private contractors in order to better reallocate government costs (optimal capital allocation!). As MYEG operates largely in the government concessionaire business, this news spooked investors on fears that their NIISe immigration concession with the government wouldn’t be renewed. MYEG’s share price has since recovered slightly — falling by “only” -20% since before the debacle.
One of the reasons behind this recovery is because TS Wong himself has been buying MYEG shares from the open market hand over fist since the debacle ensued (and engaged the company in large share repurchases) — increasing his ownership stake in the company to 30%. A Malaysian sovereign wealth fund KWAP (pension fund for local government employees) appears to share his sentiments and has also been acquiring shares from the open market at roughly the same pace.
So what could stock markets be missing that TS Wong and KWAP are seeing? MYEG also happens to be involved in the buildout of China’s ZETRIX blockchain network — which is meant link up with the local national equivalent Xinghua Blockchain Infastructure & Facility (Xinghua BIF) in order to process all international blockchain transactions between China and the outside world. As MYEG earns a “gas fee” on every ZETRIX blockchain transaction, this effectively turns it into a toll road of sorts for all international blockchain payments in China.
While MYEG has so far only stated its plan to target inter-governmental trade between the 14-member RCEP nations, there’s really nothing stopping MYEG from one day earning a “gas fee” on all commercial inbound/outbound blockchain transactions to China — which could potentially turn it into a true blockchain equivalent of Visa/Mastercard for international transactions with China. To be clear, we’re talking about decade-long timespans here — but considering the incremental use of RMB in crude oil trade over the coming decades & how the digital yuan (e-RMB) is by far the most advanced implementation of CBDC yet today, this could eventually become another Teledyne story for the ages. And if so, is MYEG worth its present-day valuation of 19x PE?
In this tantalizing MYEG report, we’ll be covering:
Not-so-NIISe — Why MYEG’s Share Price Fell By -20%
T.S. Wong, the Optimal Capital Allocator — Founder of MYEG & The Henry Singleton of Malaysia
MYEG’s Business Model + ZETRIX: The “Toll Bridge” of International Blockchain Payments in China — Estimating the potential +300% contribution of China’s international blockchain payments gateway to mYEG
Financial Statement Analysis of MYEG — Profit & Loss, Balance Sheet & Cash Flow Statement (FY20-FY22)
MYEG’s Valuation — Is the Future “Toll Bridge” of China’s International Blockchain Payments Worth 19x PE?
The Value Investing Substack Portfolio Outperformed The S&P500 By Over +16.6% In 2022 — Click the link below!
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Not-so-NIISe: Why MYEG’s Share Price Fell By -20%
If you’d like the nitty gritty regarding the recent NIISe debacle which led to MYEG’s share price falling by -20% to-date, the above two videos do a good job of capturing what happened. However, in the interest of brevity, the short & sweet version of the recent NIISe developments at MYEG is as follows:
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