• We reaffirm our optimistic view on MYEG with earnings estimated to grow at a robust CAGR of 20% over the next 3 financial years, as the company enters a new phase of growth cycle.
• MYEG stands to reap benefits from acceleration in digital adoption nationwide, new revenue stream from Covid-19 health screening, and improved contribution from foreign worker business segment upon the opening of borders.
• We reiterate our BUY recommendation with higher TP of RM3.00 (from RM1.70), pegged at 30x PE on 2021 EPS of 10 sen. The valuation is more reflective of MYEG’s future potential, and fully justified in our opinion, as earnings are lifted significantly by new growth drivers.

Enormous potential lies ahead

MYEG’s long-term outlook remains constructive as we expect earnings to grow strongly at a 3-year CAGR of 20%. Our positive view on MYEG is attributable to 1) an increase in digital adoption rate that will benefit MYEG’s e-government and commercial-based businesses, 2) new revenue stream from Covid-19 health screening, and quarantine (MySafeTravel), and 3) opening of international borders which will positively contribute to foreign worker business segment.

Deserves re-rating on higher PE valuation

Despite MYEG’s excellent earnings track record and positive business developments amid a challenging business environment, MYEG is trading at only 18x 12-month forward PE. We think this is unjustified and argue for a higher PE valuation closer to pre-general election (GE) in May 2018. Since then, MYEG has continued to deliver robust earnings performance, attractive EBITDA margin level at 56-59%, while ROE has sustained at more than 30%.

Recalibrating our earnings, reinforcing outlook

Following the changes made to our assumptions, we forecast MYEG’s EPS for 2021F to rise by 34% yoy versus our previous estimate for 41% growth, with 2022F EPS moderating to 19% yoy. Despite the moderation in our new estimate, this is still a significant growth nonetheless, as we expect MYEG’s foreign worker segment contribution to remain strong through the offering of new valueadded services. Currently, the foreign worker segment contributes circa 40-45% of MYEG’s total revenue.

Reasserting BUY at a higher TP of RM3.00

We maintain our BUY call on the stock with a higher TP of RM3.00, pegged at 30x PE on its 2021 EPS of 10 sen. Our high-conviction recommendation is based on its earnings track record – despite negativity surrounding the companies since 2018 – plus new revenue and earnings drivers as MYEG enters a new growth cycle, based on our estimate. We believe MYEG deserves a re-rating and we expect to see higher valuation as its PE regresses to mean.

Source: BIMB Securities Research - 14 Dec 2020