RESULTS

• Results broadly in line with our expectations but below street’s. My E.G. Services (MYEG) reported 3QFY18 core net profit of RM58.6m (-0.8% qoq, +8.6% yoy), bringing 9MFY18 core net profit to RM170.4m (+20.0% yoy). While 3QFY18 growth is the lowest in years, we deem the results to be broadly in line with our estimate but below the street’s as the cumulative number accounts for 70% and 66% of the respective estimates. We also expect a seasonally stronger fourth quarter ahead.

• Foreign worker-related services continue to drive growth... 3QFY18 revenue rose 12.4% yoy to RM111.5m on the back of: a) higher contribution from the immigration segment amid improved transaction volumes and insurance take-up rates from foreign worker renewal, b) increase in revenue contribution from its motor vehicle trading services, and c) higher foreign worker job matching and placement transactions which commenced operation in 2QFY18.

• …offset by higher operating costs. Nevertheless, the higher revenue was partly offset by: a) higher operating costs incurred, which grows in tandem with the growth of foreign worker renewal and amnesty programme, b) higher interest cost arising from the RM120m term loan to fund the acquisition of a new office building, and c) increase in maintenance and operating expenses for MYEG tower. Consequently, 3QFY18 net profit margin contracted marginally by 1.8ppt to 52.5% yoy.

• Outlook. We believe that the selling pressure has bottomed out as MYEG’s share price inched up slightly yesterday despite the selldown in the general market. Overall, share price plunged 70% since the general election (GE14) on 9 May, after suffering relentless selling pressure, including three limit downs. Separately, MYEG bought back a total of only 43m shares since GE14, cumulatively representing 1.2% of its paid-up capital. Prior to the recent buybacks, MYEG had only 10m of treasury shares. Note that MYEG had a net cash position of RM115.8m as at 2QFY18.

EARNINGS REVISION

• No changes to net profit forecast.

RECOMMENDATION

• Maintain BUY with an unchanged target price of RM1.06, based on 12.7x FY19F PE, implying -1.3SD which is below its historical mean PE amid current market uncertainty. Our assessed trough valuation is RM0.84/share, based on 10x FY19F PE.

Source: UOB Kay Hian Research - 31 May 2018