• Overview. MYEG’s 1Q22 core profit grew by 7% yoy and 2% qoq to RM82m despite reported a decline in revenue (-6% yoy and -31% qoq) of RM162m. The improvement in core profit was mainly backed by lower operating costsfrom its MySafeQuarantine (MySafeQ) services. As a result, MYEG’s EBITDA margin expanded 7.8ppts yoy and 18ppts qoq to 60% in 1Q22.

• Key highlight. The dropped in MYEG’s revenue was primarily due to a change in management strategy for its MySafeQ. Previously, MYEG will purchase rooms, upfront from quarantine hotels for private quarantine arrangements, resulting in higher revenue and cost of sales. However, in 1Q22, MYEG switched to a reservation arrangement and recognised a referral fee for every private quarantine arrangement, resulting in lower operating expenses. Nevertheless, management guided that MYEG continues recorded higher transaction volume for its existing concession services in 1Q22 which led to an increase in contribution from ancillary services i.e., fulfilment of security documents, online renewal of insurance, etc.

• Against estimates: Inline. MYEG’s 1Q22 core profit was within our and consensus’ estimates at 23% respectively.

• Outlook. We foresee the reopening of international borders and arrival of foreign workers in Malaysia to provide a brighter outlook for MYEG’s immigration related services moving forward and eventually offset the flattish growth expected for MYEG’s Covid-19 related services following the easing of Covid-19 rules in Malaysia. In addition, MYEG’s ongoing business expansion by introducing innovative services across all market segments as well as globally would offer greater earnings growth in the long run.

• Our call. Maintain BUY at TP of RM1.45, pegged at 30x PER on 2022 EPS of 4.9 sen.

Source: BIMB Securities Research - 31 May 2022