WHAT’S NEW

It was reported on various news portals (ie The Star, Malaysia Kini and Malay Mail) that Home Minister Tan Sri Muhyiddin Yassin will no longer extend the rehiring programme for illegal workers when it expires on 30 Jun 18 and all dealings with the three service vendors (namely MYEG, Iman Resources and Bukti Megah) appointed earlier will be terminated.

COMMENT

• Misleading news headline. Based on our channel checks, the abovementioned news headline is misleading and management had made an announcement to clarify the alleged termination of the rehiring programme.
• Not a termination of contract. Essentially, we understand that it is not a contract termination as the programme had officially ended as scheduled on 31 Dec 17 with only some clearing of backlog paperwork to be completed at this point in time. Recall that the government had launched the foreign worker rehiring programme back in Feb 16 and further extended it until 31 Dec 17. Note that our assumptions have minimal/negligible rehiring revenue recognition in 2018.
• Silver lining. The expiry of the rehiring programme will force employers to expedite the paperwork completion of the rehiring process, which would later on benefit MYEG’s online foreign worker licence renewal services and insurance business. Meanwhile, the insurance business is growing well at a rate of >50%.

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 - 4 Jun 2018