• The latest LOA related to MyEG’s immigration concession comes with a system enhancement requirement, which we think can easily be addressed.

• We also believe MyEG is moving closer to the official launch of ZTrade, which should be positive for the group’s earnings.

• Reiterate Add with an unchanged GGM-derived TP of RM1.10.

Immigration concession extended for another 2 years

• MyEG announced yesterday (17 Oct) that it had received the letter of acceptance (LOA) from the Ministry of Home Affairs on 16 Oct 2023 for the extension of its immigration concession for another two years, without specifying the exact start and end dates. As part of the extension, the group is also required to undergo a system enhancement process, MyEG said. We understand that the enhancement process may take around two weeks to be completed, while the associated costs are negligible. We therefore expect MyEG to resume its immigration services by Nov 2023.

• To recap, the related immigration concession services offered by MyEG, per our checks with management, are online foreign worker and maid permit renewals, with new additional scope of works including the provision of identity verification and delivery of iKad for new foreign workers.

Minimal impact on earnings

• With its immigration services having been on pause since 15 Sep 2023, we believe this could create a service backlog until the system enhancement is completed by early next month. Therefore, the impact of the concession extension on FY23F net profit would likely be negligible, in our view. Overall, we still expect its immigration segment to make up a sizeable revenue composition of 36-41% for FY23-25F.

• More importantly, in our view, is the timeline for MyEG’s ZTrade platform to go live, after which all inbound customs trade between Malaysia and China will likely be processed via the platform. We understand the pilot run has been successful and following the conclusion of the recent bilateral agreement between Malaysia’s Ministry of International Trade and Industry (MITI) and Chinese Customs, the service is now undergoing final administration formalities prior to the official launch, likely by end-Oct 2023.

• Upon going live, this could provide a decent recurring revenue for MyEG through a fixed fee generated for each Certificate of Origin (CO) issued. We expect ZTrade to anchor the growth for MyEG’s blockchain segment, complemented by other ancillary services, such as digital identity credential and Zetrix token sales. This could cushion the declining revenue from the transportation segment due to the digitalisation of JPJ-related documentation, in our view.

Reiterate Add

• We reiterate Add on MyEG with an unchanged GGM-derived TP of RM1.10. The stock is trading at 13.3x FY24F P/E, which is 1 s.d. below its 5-year average of 18x.

• Key downside risks include worse-than-expected decline in its JPJ-related businesses, its blockchain business not materialising, and non-extension of its current concession services. A re-rating catalyst is strong blockchain sales traction and expanding scope of work for its concession services for the government.

Source: CGS-CIMB Research - 18 Oct 2023