Credit Update: Zetrix Moderate Refinancing Risk Ahead and strategic pivot into Blockchain

Highlight

• Minimal Credit Impact from Contract Exit: Cessation of the foreign worker permit renewal project will have an estimate hit of 8–9% of FY2024 revenue. Credit impact will be limited with continued service provision under NIISe ensuring business continuity.

• Significant Blockchain Investment: Blockchain capitalised development costs rose substantially from RM323 million in FY2021 to RM2.3 billion in 2QFY2025 (as of June 2025).  This underscores strategic pivot toward blockchain infrastructure and AI solutions.

• Strong Liquidity & Coverage: Healthy cash balance of RM333 million and interest coverage ratio of 11.8 times in 2QFY2025 support near-term debt obligations. Net gearing ratio is comfortable at only 27%.

• Rising Refinancing Risk in FY2027: High debt maturity of RM675 million in FY2027 poses moderate refinancing risk as blockchain cash inflows remain uncertain and volatile.

• Need to monitor Blockchain Execution closely: Revenue driven by non-recurring token sales and transaction fees from blockchain lack visibility at the moment and, investor are advised to adopt a wait-and-see stance until clearer recurring income visibility emerges.

Zetrix’s Exit from Foreign Worker Permit Project Has Minimal Credit Impact

On 28 July 2025, Zetrix AI Berhad (formerly known as MY E.G. Services Berhad) ceased involvement in the government’s foreign worker permit renewal project, which was estimated to contribute around 8%–9% of FY2024 revenue. The cessation, arising from changes in the delivery framework of Immigration Services, has minimal credit impact as Zetrix continues to provide certain Immigration Services without disruption under the National Integrated Immigration System (NIISe) led by HeiTech Padu Bhd in which it holds a 24.93% stake, thereby maintaining operational continuity in certain Immigration-related services.

On 4 August 2025, Zetrix entered into a Supplemental Agreement with HeiTech Padu to further define their collaboration, under which Zetrix focuses on front-end solutions while HeiTech undertakes back-end system development for identified projects. Despite the cessation of the foreign worker permit service contract, Zetrix’s credit profile remains healthy, supported by strong earnings and low leverage, with an estimated adjusted interest coverage ratio of 10.8 times and a net debt-to-EBITDA ratio of 1.16 times in FY2024.

Zetrix’s launch MyDigital ID Superapp Unlocks New Revenue Steam

On 24 January 2025, Zetrix announced a strategic collaboration with MyDigital ID Solutions Sdn Bhd to develop the blockchain-powered MyDigital ID Superapp, a platform designed to just have a single sign-on to gain access to a host of government services as well as commercial services.

Under this initiative, Zetrix will earn RM0.40 per user from service providers leveraging the Malaysia Blockchain Infrastructure (MBI) for identity verification. According to management, the Superapp is currently in its final testing phase and is expected to be launched to the public in the near future, potentially unlocking a scalable and recurring revenue stream.

Zetrix Expands ASEAN–China AI Lab and Launches NurAI

On 15 August 2025, Zetrix further expanded its ASEAN–China AI Lab, a government-to-government (G2G) initiative promoting collaboration between ASEAN nations and China in AI, blockchain, and robotics, by establishing a new facility in Jakarta, Indonesia. This follows the launch of the flagship lab in Petaling Jaya, Malaysia, earlier in 2025. The Lab aims to accelerate the adoption of cross-border digital solutions by integrating these technologies into real-world applications while localising Chinese-origin innovations to suit ASEAN socio-cultural contexts.

A key milestone from this initiative is NurAI, unveiled on 12 August 2025 as the world’s first Shariah-aligned, Islamic values-based large language model (LLM). NurAI offers culturally and faith-aligned AI solutions across finance, healthcare, law, education, and lifestyle sectors, with personalized AI Avatar channels providing expert guidance. Developed under a formal Shariah Supervisory Board in collaboration with leading Islamic religious and scholarly bodies, NurAI addresses the needs of Muslim-majority nations and the wider Global South. The initiative underscores Zetrix’s ambition to position itself as a regional enabler of ethical and value-based AI, potentially strengthening its technology leadership and diversifying its revenue base through enterprise and government partnerships across ASEAN.

For further details, please refer to Credit Update: MYEG Diversifies Revenue and Strengthens Credit Profile Through Blockchain Expansion.

Financial Performance

In 2QFY25, revenue rose 28% YoY to RM608 million, driven mainly by blockchain-related income - application service fees and Zetrix token sales. However, operating profit margin declined from 80% in 2QFY24 (June 2024) to 76% in 2QFY25, due to higher operating expenses.

Credit Highlight

As shown in Table 1, Zetrix has significantly increased its blockchain-related development spending since FY2021, with capitalised development costs rising from RM323 million in FY2021 to RM2.3billion in 2QFY25. This underscores the Group’s strategic focus on expanding its blockchain infrastructure, although the high level of capitalisation may signal rising execution and monetisation risk in its blockchain investments.

The expansion has been largely debt-funded, with total borrowings climbing from RM161 million in FY2021 to RM1.25 billion in 2QFY2025. Consequently, net debt increased to RM924 million, while the net gearing ratio stood at about 27%. Despite higher leverage, gearing remains manageable, supported by a sizeable cash reserve of RM333 million as at 2QFY2025, which provides liquidity for ongoing project development.

Zetrix’s liquidity position remains robust, with an interest coverage ratio of 11.8 times and a cash-to-short-term-debt ratio of 3.2 times, indicating sufficient near-term financial flexibility. However, continued expansion in blockchain development spending may add pressure cash flow and gearing metrics if monetisation of blockchain assets is slower than expected.

Table 1: Key Credit Metrics

As shown in Chart 1, Zetrix faces a high debt maturity of RM675 million in FY2027. As of 2QFY25, the Zetrix’s cash balance of RM333 million appears sufficient to cover the RM250 million principal repayment due for its existing MYEGMK 5.400% 21Aug2026 Corp (MYR) bond show in Table 1, indicating adequate liquidity to meet near-term obligations.

However, operating cash flow is expected to moderate following the cessation of the foreign worker permit renewal project in July 2025. As a result, the FY2027 bond maturities MYEGMK 5.800% 01Mar2027 Corp (MYR), MYEGMK 5.800% 16Aug2027 Corp (MYR), and MYEGMK 5.850% 19Nov2027 Corp (MYR) could face higher refinancing risk relative to FY2026, unless the blockchain segment begins generating stronger and more recurring cash inflows. In July 2025, Zetrix upsized its sukuk programme from RM1.0 billion to RM2.0 billion to enhance funding flexibility ahead of upcoming maturities and blockchain expansion plans.

Recently, Zetrix issued the MYEGMK 5.550% 18Sep2028 Corp (MYR) senior unsecured bonds with a three-year tenor, offering a yield to maturity of 5.26%. Proceeds are earmarked for new technology initiatives under the ASEAN–China AI Lab, covering AI, blockchain, and robotics projects such as NurAI, a Shariah-compliant large language model.

Looking ahead, we will closely monitor Zetrix’s blockchain business given that:

• Its revenue remains largely dependent on token sales, exposing the company to market sentiment and price volatility, while such income is non-recurring in nature; and

• Blockchain adoption remains at an early stage, with limited transparency and visibility in earnings contribution.

Accordingly, we are adopting a more cautious stance on this issuance and viewed it as more appropriate for investors with higher risk appetite who are confident in Zetrix’s ability to scale and monetise its blockchain platform.

Chart 1: Debt Maturity

Recommendation

Zetrix’s credit fundamentals remain stable despite the cessation of the foreign worker permit renewal project. Robust liquidity, moderate gearing, and strong interest coverage continue to anchor its near-term credit strength.

That said, the Zetrix’s aggressive expansion in blockchain and AI though strategically aligned with Malaysia’s digital transformation agenda has increased leverage and introduced execution and monetisation risks.

Looking ahead, the successful commercialisation of blockchain-based solutions such as MyDigital ID Superapp and NurAI will be critical to earnings visibility and easing refinancing pressure, particularly on the RM675 million debt maturing in FY2027.

We maintain a Neutral (Hold / Wait-and-See) view.  We acknowledged that Zetrix’s recurring blockchain income streams are still in the early stages of monetisation and will closely monitor its developments.

Table 2: Existing Zetrix’s Bond

Declaration

For specific disclosure, at the time of publication of this report, IFPL (via its connected and associated entities) holds MYEGMK 5.400% 21Aug2026 Corp (MYR) and the analyst who produced this report holds a NIL position in the abovementioned securities.