Initiation: Strong Pipeline of Growth Opportunities

• Initiate coverage with a BUY call and TP of RM2.70. We like MYEG for its proactive management, good working relation with government agencies, strong 2021E earnings outlook and exciting new business opportunities
   
• MYEG has launched a vast array of new products and services in 2020. We expect some services to contribute materially to 2021E revenue (ie, COVID- 19 screening, MySafeTravel), while others help to improve its branding
   
• We anticipate MYEG’s valuation to re-rate within the next 12-month led by strong earnings growth, easing concerns over termination of its concessions, exciting new business prospects and high market liquidity

Initiate coverage with a BUY rating and TP of RM2.70, based on 31x 2021E PER

MYEG is a dynamic company that continuously explores new opportunities to grow its revenue streams, both in Malaysia and regionally. Qualitatively, we like MYEG for its proactive and resourceful management, good working relations with a number of Malaysian government agencies, strong branding, asset-light/high-margin business model and good progress in its Philippines business ventures. Also, MYEG is a member of the FSTE4Good Index of Bursa Malaysia Index and FTSE Russell ranked MYEG in the top 25% by ESG Ratings amongst the companies in FBM EMAS.

We Expect 18% Yoy Profit Growth in 2021E Driven by New Services

Importantly, we are positive on MYEG’s earnings outlook, expecting 18% yoy growth in 2021E core net profit driven by full-year contribution from several new services launched in 2020 (ie. COVID-19 screening, MySafeTravel, online grocery, renewal of motorcycle road tax) and higher adoption of online services for its road transport segment due to the behavioral changes brought forth by the COVID-19 pandemic. Looking into 2022, we anticipate a rebound in immigration-related services after the easing of lockdowns, should more than offset waning COVID-19 testing revenue.

EPS growth, easing concerns, exciting new prospects should re-rate valuation

We anticipate MYEG’s valuation to re-rate strongly, driven by: (i) a strong pickup in quarterly core net profit after a dull period averaging RM60m between 4Q17-2C20; (ii) extension of road transport and immigration concessions in 2020 reaffirmed our view that MYEG offers good services and has healthy working relations with government agencies; (iii) MYEG is working on exciting new prospects including Zhifei’s COVID-19 vaccine and digital banking services. Elsewhere, the potential reimplementation of the GST may fuel investor interest in MYEG, given the group’s extensive experience in the GST monitoring related projects.

Source: Affin Hwang Research - 5 Feb 2021