• Possibility for e-government license extension. Management remains optimistic on the extension of e-government license which is to expire in May 2020. This is due to its proven track record in delivering the services since 2001 coupled with large scalability for over-the-counter locations (c. 1,000 kiosks nationwide). Despite risk of new entrants, we believe it will be a huge challenge for a new player to provide e-government services as MYEG had set a high benchmark for others to emulate.

• Potential winner for government projects. According to management MYEG is bidding for two government projects; Visa Luar Negara (VLN) and National Integrated Immigration System (NIIS) where the awarded contracts are expected to be announced in 1Q20. We see of higher possibility for MYEG to win VLN project given its partnership with a Chinabased travel agency company, which will provide ease of travelling processes for Chinese tourists. Management guided that under the previous VLN project, the vendor received payment of RM100 per tourist.

• Oversea business expansion. MYEG is positive over its regional business expansion especially in the Philippines following the partnership with Land Bank of the Philippines (LANDBANK). It aims to increase daily volume of transaction to 10,000 from 1,000 by end of 2020. In addition, MYEG is expanding its tax monitoring system in 30 more cities in Indonesia as a pilot project in Jakarta still actively underway. The system will charge the merchant Rp2,000 per device for installation and additional fee for annual maintenance. This would allow MYEG to capitalise from the existing business and provide value-added services (ie. Point-of-sale system, accounting system and employee salary system).

• Remain positive. We are convinced that MYEG will continue to deliver egovernment services given its established IT infrastructure and solid track record to stave off competition. However, we acknowledge the risk of egovernment license termination, hence resulting in lower earnings. Should this scenario occur, ie MYEG to forgo the e-government services (20% of revenue), our forecast implies earnings growth trajectory at 3- year CAGR of only 1.3% over FY19-22F from non-concession businesses (ie. auto insurance, foreign worker insurance, motor vehicle tradingrelated services, job matching & placement and hostel accommodation). This translates to an intrinsic value of RM1.15.

• Maintain BUY at RM1.70 TP. We reiterate our BUY call with DCF-derived TP of RM1.70 which implies FY20/21F PE of 21x/16x. We believe this is fair given its expertise in IT services and growing ancillary business to provide sustainable earnings growth for the long term. Besides, we see its overseas business expansion (Philippines and Indonesia) as a good strategy for MYEG to reduce its single market exposure over time.

Source: BIMB Securities Research - 12 Feb 2020