• MyEG’s 3QFY18 core earnings grew 8.7% yoy and fell 0.8% qoq to RM111.5m, boosting 9MFY18 core earnings to RM170m, up 19.5%, on higher transaction volumes relating to foreign worker programmes and motor vehicle trading services.

• Overall, 9MFY18 earnings trailed ours and consensus’ forecasts at 61.3% and 66.1% respectively. We make no change to our estimates as we expect to see earnings upside in 4QFY18 to come from foreign worker-related programmes.

• Maintain BUY with a DCF-derived TP of RM2.60 (WACC: 8.6%, terminal growth: 1%) which implies FY19F PE of 26x. We believe this is fair given to its strong presence in e-government services to retain its dominance in the space.

3QFY18 earnings remain intact

MyEG’s 3QFY18 core earnings grew 8.7% yoy and fell 0.8% qoq to RM111.5m. The growth was due to higher transaction volumes from renewal of foreign workers’ permit (FWP), foreign workers’ insurance, FWRP, foreign worker job matching and placement programme as well as increased contribution from motor vehicle-trading related services. These contributed towards 9MFY18 core earnings growing 19.5% to RM170m. Overall 9MFY18 earnings trailed ours and consensus’ forecasts at 61.3% and 66.1% respectively.

Higher opex to offset qoq revenue

On qoq basis, revenue grew 2.1% but gains were offset by higher opex which led to EBITDA margin narrowing by 101bps to 59.0%. Opex was higher to support the growth in FWP while interest costs increased arising from the term loan to finance its newly-acquired building.

Outlook remains strong but expect new players

MyEG’s share price have taken a significant beating post-GE14 due to concerns its huge exposure to government-related businesses and presence of board members closely tied to previous administration. With the new administration setting a prudent policy undertone, we expect existing concessions to be tendered out for new entrants and service rates to be reduced. Still, we take the view that MyEG’s strong e-government services track record and branding, especially in foreign worker related programmes would see it retaining its dominance.

Maintain BUY at RM2.60 of TP

Maintain BUY with a DCF-derived TP of RM2.60 (WACC: 8.6%, terminal growth rate: 1%) which implies FY19F PE of 26x. We believe the stock has been oversold. Based on our assumptions of lower service fees, it continues to command robust ROEs of over 30%. We believe its strong presence in e-government services is crucial to stave off competition and retain its dominance in the space.

Source: BIMB Securities Research - 31 May 2018