• 4Q18 core earnings fell 6% yoy on higher opex althoughFY18 core earnings rose 12% driven by higher transaction volumes from foreign worker rehiring programme (FWRP).

• Overall, FY18 earnings were below ours and consensus’ forecasts at 82% and 88% respectively.

• Maintain BUY with a DCF-derived TP of RM2.60 which implies FY19F PE of 25x before easing to 21x in FY20F.

Higher opex offset yoy revenue

4QFY18 core earnings fell 6% yoy despite 2% revenue growthcoming from Immigration and JPJ-related programs as well as motor vehicle trading-related services. However, revenue gains were offset by the higher opex due to increase in its maintenance and operating expense of MYEG tower which saw EBITDA margin narrowing by 2 ppts to 59%.

Lower transaction volume drive qoq decline

Sequentially, 4QFY18 core earnings fell 4%qoq in tandem as revenues came in lower due to the decline in transaction volumes during the election period. We believe this could be due to the public expecting some changes on the regulatory requirements post-election.

FY18 earnings improved

FY18 core earnings grew 12% to RM226m on higher registration volume from foreign workers rehiring program (FWRP) in 2HFY18 as no more extension is expected ahead. Still, FY18 earnings were below ours and consensus’ forecasts at 82% and 88% respectively as we expected larger number of foreign workers to register under FWRP.

Positive prospects ahead

Moving forward, we expect foreign workers from the FWRP renewing permits, translating to RM15m revenue annually. We remain positive on MyEG despite the new government as we expect earnings from non-concession businesses would continue given its ability to provide complementary services from existing businesses. If we assume MyEG delivers e-gov services for free (ie. this eliminates 20% of annual revenues), our forecasts still imply earnings growth trajectory at 3- year CAGR of 21%. This translates to an intrinsic value of RM2.30.

Dividend declared

A final dividend of 1.4sen was declared translating to YTD DPS of 1.9sen. This implies a dividend yield of 0.9% at current level. Its FY18 DPS made up 82% of our estimate.

BUY at RM2.60 of TP

Reiterate BUY with a DCF-derived TP of RM2.60 (WACC: 8.6%, g: 1%) which implies FY19F PE of 26x and21x for FY20F. We believe this is fair given its proven track record and established IT infrastructure that could stave off competition.

Source: BIMB Securities Research - 3 Sept 2018