KUALA LUMPUR (April 26): UOB Kay Hian Research on Tuesday (April 26) cut its 2022 profit before tax (PBT) forecast for MyEG Services Bhd by 16% to RM369 million to reflect lower volume assumptions for Covid-19 tests and e-testing due to potential travel policy changes and commercialisation delays.

However, the foreign research house remains upbeat on MyEG’s prospects, which it said are anchored on the recovery of the foreign worker segment, the road transport segment’s launch of e-testing, Zetrix’s launch and the potential to clinch new government contracts.

UOB Kay Hian analysts Vincent Khoo and Jack Goh said in a Tuesday note that as a key border reopening beneficiary, MyEG is expected to deliver a 16% earnings growth in 2022, driven mainly by the immigration and road transport segments.

“While we expect revenue from the healthcare segment to significantly taper off by the second half of 2022, the shortfall will be cushioned by the earnings growth/recovery in MyEG’s e-government/immigration-related services,” said the duo.

They added that as Malaysia is likely to soon follow suit with its regional neighbours’ easing of border-crossing requirements — waiving the Covid-19-test mandate — for inoculated travellers, MyEG’s Covid-19 testing and quarantine service revenues will eventually significantly shrink.

“While MyEG should deliver strong interim earnings based on more than 5,000/day Covid-19 tests, we reduce our 2022 Covid-19 test volume assumption from three million to 800,000 to conservatively factor in the abolishment of Covid-19 testing requirements for fully-vaccinated inbound travellers,” they said.

The duo also noted the delay in MyEG's commercial roll-out of its automated driving test and training system (e-testing).

To recall, MyEG commenced the proof of concept of e-testing in November 2021, which after the commercial roll-out could deliver RM50 million to RM60 million in profit per year.

“However, we understand that there were some technical delays in the roll-out, and now assume that the commercialisation will only materialise by July at the earliest, thus only contributing about RM21 million in our 2022 PBT forecast,” they said.

Despite the delayed timing of emerging revenue streams, the duo said the stock should resonate with the upcoming stream of positive news, including the country’s initiation of foreign worker recruitment (boosting MyEG’s immigration segment’s matching and permit renewal services), Zetrix’s further launches of blockchain-related new applications, and possibly clinching new government contracts.

The analysts maintained "buy" on MyEG with a lower target price of RM1.30 (from RM1.58).

At the time of writing on Tuesday, MyEG had risen 1.5 sen or 1.56% to 97.5 sen, valuing the group at RM7.11 billion. Year to date, the counter has tumbled 9.72%.