• MyEG’s 1QFY17 net profit of RM40.5m is inline with our expectation, making up 22% of our full year estimates.

• Revenue grew 29.4% yoy mainly due to online renewal of foreign worker’s permits, and insurance and foreign worker rehiring programme services.

• Net profit rose 42.2% due to improved margin from 46.9% last year to 51.5% this quarter.

• We maintain our net profit forecast for FY17 of RM184.5m but revise our FY18 forecast to RM219.2m respectively with immigration services maintain as a key driver to earnings growth. Immigration services to support earnings growth. MyEG started the immigration services business with domestic maid permit renewal in 2010. Foreign workers renewal permit expanded in March 2013 to include workers in all other sectors. As of May 2015, the government stopped processing permits at counters, thereby ensuring 100% penetration for online service. MyEG receives RM35 per transaction for renewal permit of foreign workers and RM100 extra fees on related services. We estimate MyEG immigration services will contribute RM156.4m or 44.8% in FY17 and RM221m or 56.5% in FY18 respectively.

Rehiring programme to elevate FY17 growth. MyEG has been appointed to register illegal foreign workers by the government beginning Feb 2016. In the process, MyEG will obtain RM100 per registered foreign worker under the programme. According to the management, over 300k of illegal foreign workers was registered up until June 2016.

The programme has been extended until Dec 16, and we expect the number will double by end of the programme.

Final dividend on target. MyEG has a dividend policy of distributing at least 30% of the group’s profit. Our FY16 dividend target is spot on after MyEG declared 1.3sen for its final dividend on 11 Nov 2016.

Bonus Issue 2 for 1. To attract more liquidity of its shares, MyEG has proposed a bonus issue on the basis on one bonus share for every two existing MyEG shares. Thus, the existing share capital of 2,404.2m will be expanded to 3,606.3m of shares.

Maintaining our recommendation. We expect MyEG earnings growth to further strengthen in FY17 to RM184.5m and FY18 to RM219.2m (previously from RM195m) mainly contributed with a bump-up in revenue from the immigration services to allow 100% penetration (removing our previous conservative assumption of 90%) of online services in renewal permit for foreign worker. This increase in immigration services is partly contributed by the 50% take-up rate on the insurance of foreign workers as part of immigration services related services. Thus, we revise up our target price to RM2.10 (or RM1.40 ex-bonus) previously from RM1.92 based on the sector PER of 25x of CY17. Maintain HOLD.

Source: BIMB Securities Research - 30 Nov 2016