• On 19 Oct 2018, MyEG and Datasonic share prices fell over 25% after it were purportedly implicated in gratification charges involving the former Home Affairs Minister.

• Both companies denied any involvement; MyEG announced that it was cleared by the Malaysian Anti-Corruption Commission (MACC), absolving its Board of Directors (BoD) and the company from further investigation on this case.

• However, due to the circumstances we are less positive on Datasonic as this creates an overhang on the stock given its huge dependency on government contracts.

• Maintain BUY call on MyEG with an unchanged DCF-derived TP of RM2.60 (WACC: 8.6%, g: 1%) while we downgrade Datasonic to HOLD with lower DCF derived TP of RM0.50 (from RM1.20) based on 11% WACC and 0% LT growth.

Charges involving the companies

Both MyEG and Datasonic were purportedly implicated in the gratification charges involving former Home Minister, Datuk Seri Ahmad Zahid Hamidi. According to MyEG – re: Charge 11, 12 and 13 (Table 1) – the former Home Affairs Minister received gratification in the form of cheques amounting RM13.25m from a local company, Mastoro Kenny IT Consultant & Services, to help secure a MyEG project. Meanwhile, re: Charge 14 and 15 (Table 1), the former Home Affairs Minister received gratification in the form of cheques worth RM6m from one of Datasonic’s Director, Mr Chew Ben Ben.

Company’s denials

Both companies have been quick to deny these allegations. MyEG announced on the same afternoon that the investigating body, MACC, has confirmed and clarified that MyEG is not involved in the investigation in any way. Meanwhile, Datasonic has also clarified that the supply of passport chip contract, worth RM318.75m, said to be the outcome of the gratification charges, was secured in 2015 – c.1.5 years prior to the submission of cheques. Management maintains that it secured the contract which was 15% lower than that carried out by the previous vendor.

Positive on MyEG, less so with Datasonic

We believe the firm absolution of MyEG by MACC offers an attractive buying opportunity as we remain positive on the stock’s prospect owing to its healthy track record and established IT solutions platform. However, we turn less positive on Datasonic as the allegation creates an overhang over its earnings outlook in view of its earnings’ huge dependency on government contracts.

Maintain BUY on MyEG; Downgrade to HOLD on Datasonic

We maintain our BUY call on MyEG with unchanged DCF-derived TP of RM2.60 (WACC: 8.6%, LT growth rate: 1%) while we downgrade Datasonic to HOLD at a TP of RM0.50 (from RM1.20) based on WACC: 11% and LT growth rate of 0%. For MyEG, this implies FY19F PE of 26x before easing to 21x for FY20F while our valuation on Datasonic implies a FY19F PE of 9x before easing to 8x in FY20F.

Source: BIMB Securities Research - 23 Oct 2018