• MYEG awarded extension of Immigration related services from Ministry of Home Affairs for 3 years valued at RM208m.
• We are positive on the extension contract as it would continue to provide earnings visibility to MYEG. Besides, we also expect additional earnings growth coming from further expansion for its Immigration-ancillary services in the future
• No change to earnings as we have assumed it in our valuation, but this extension lifted a huge uncertainty away from MYEG.
• Maintain BUY with DCF-derived TP of RM1.70 (WACC: 8.6%, terminal growth rate: 1%), implying FY20/21F of 21x/16x.

Three years extension for Immigration related services

MYEG has received an official notification from the Ministry of Home Affairs on 1 July 2020 for extension of the Immigration related services which expired on 22 May 2020. The extension will be for a period of 3 years with a contract value of RM208m (Table 1). To recap, on 22 May 2020, there were two contracts (JPJ and Immigration-related services) which required extension. However, as at 30 June 2020, the JPJ-related services agreement is yet to be finalised by the government, even after 1-month extension. Still, we remain confident that MYEG will be awarded the JPJ contract.

Growing Immigration-ancillary services expected ahead

We are positive on the announcement as it would continue to provide earnings visibility to MYEG. Besides, we also expect additional earnings growth coming from expansion for its Immigration-ancillary services i.e. foreign worker insurance, foreign worker recruitment & replacement related services as well as foreign worker accommodation in the future. Based on our assumption, overall Immigration related services including ancillary contributed c. 40-50% to total revenue.

Lower contract value within expectation, huge uncertainty is lifted

Despite lower contract value for Immigration related services, we make no change to earnings estimate as it is within our expectation and we have assumed it in our valuation. The extension also lifted a huge uncertainty on MYEG, in our opinion, and provides credence on the company’s ability as the government’s long-term partner in rendering key services to the country.

Maintain BUY at RM1.70 TP.

Reiterate BUY with a DCF-derived TP of RM1.70 (WACC: 8.6%, terminal growth rate: 1%), implying FY20/21F PE of 21x/16x. We believe its strong and proven track record in delivering e-government since 2000 have set a high benchmark for new players to enter the market

Source: BIMB Securities Research - 2 Jul 2020