Maybank IB sees attractive risk-reward from MYEG

KUALA LUMPUR (April 7): Maybank Investment Bank (Maybank IB) said on Thursday that MY EG Services Bhd (MYEG) risk-reward appears attractive as it sees its immigration and healthcare segments stand to benefit from the reopening of international borders, and the market may have underestimated the potential earnings growth from its decentralised finance (DeFi) segment, which is gaining traction.

The research house's analyst Shafiq Kadir said that Malaysia's international border reopening from April 1 should benefit MYEG's immigration and healthcare segments.

According to him, Human Resource Minister had received about 470,000 applications for foreign workers as at April 1, 2022, representing more than 40% increase over 2021's registered foreign workers of 1.1 million.

Additionally, travellers (ex-Singapore) are required to undergo Covid-19 testing within 24 hours of arrival, through either MYEG's breathalyser or professionally administered RTK-Ag test.

MYEG charges RM70/RM100 per Malaysian/foreigner for its breath test; its rapid and accurate detection could be the ideal option.

"We believe this could be more than enough to offset revenue decline from its quarantine business," he said.

Meanwhile, he said that the digital yuan adoption is rapidly gaining traction, with the pilot programme being rolled out to more cities in China (now at 17) and payment service providers such as UnionPay incorporating digital yuan as a payment option on its platform for merchants/users.

"With greater adoption by the Chinese merchants, supply chain financing and traceability in the trades between Malaysia and China could be the most immediately viable application for MYEG's Zetrix. MYEG stands to benefit from the growth in transaction activities through the platform," he said.

He noted MYEG's balance sheet swung from a net cash of RM230 million end-3QFY21 (ended Sept 30, 2021) to a net debt of RM71 million end-4QFY21 due to elevated capital expenditure for its DeFi, breath test equipment, as well as the hardware for its JPJ e-testing project.

"While we have booked in a marginal revenue contribution of 2% to 8% from DeFi in FY22 (ending Dec 31, 2022) to FY24, we have yet to incorporate any incremental growth from the JPJ e-testing project, which is still in pilot stage. If it materialises, this could provide further upside to our estimates," he said.

He maintained a "buy" call on MYEG with an unchanged target price of RM1.47, based on 28 times FY23 estimated earning per share of 5.3 sen.

"At 22.1 times of its FY22 (ending Dec 31, 2022) estimated price-earnings ratio, its risk-reward appears attractive," he said.

At the time of writing, MYEG shares rose one sen or 0.97% to RM1.04. Year to date, the counter has fallen 3.7%.