• MYEG’s 4Q20 core net profit grew by 7% qoq to a record RM75.5m on higher revenue contributions from new businesses and stable profit margin
• Cumulatively, 2020 core net profit of RM268m (+9% yoy) was within market and our expectations
• We reiterate our BUY rating and 12-month price target of RM2.70. We anticipate MYEG’s valuation to re-rate within the next 12 months led by strong earnings growth, easing concerns over termination of its concessions and exciting new business prospects

4Q20 core net profit grew by 7% on higher contributions from new businesses

MYEG reported a good set of results – 4Q20 core net profit grew by 6.7% qoq to RM75.5m on the back of record revenue and improved EBITDA margin of 59% (3Q20: 57.8%) that more than offset a sequential increase in depreciation and amortisation charges. The strong sequential revenue growth of 10% was driven by contribution from its new businesses (COVID-19 health screening, online grocery sales) and higher revenue from the road transportation segment (including the newly commenced online renewal of motorcycle insurance and road tax).

The Results Were Within Market and Our Expectations

Cumulatively, MYEG’s full-year core net profit grew by 9% yoy to RM268.2m on the back of higher revenue (+10% yoy), attributable to: (i) maiden revenue from the new businesses (COVID-19 health screening, online grocery); and (ii) higher contribution from the road transport segment (due to higher adoption of online services) that more than offset lower immigration revenue. MYEG’s foreign workers’ permit renewal service and recruitment businesses were negatively affected by the COVID-19 pandemic. Overall, the results were within market and our expectations.

Maintain BUY With An Unchanged PT of RM2.70 Based on 31x 2021E PER

We tweaked our 2021-22E earnings forecasts by -0.3% after incorporating MYEG’s full-year financial results. Maintain BUY with an unchanged price target of RM2.70 based on an unchanged 31x 2021E PER. We continue to like MYEG for its proactive management, good working relations with Malaysian government agencies, strong branding, asset-light business model and strong earnings growth in 2021E. Key downside risks: weaker-than-expected earnings, stiffer competition in the egovernment services space, weaker domestic economy and prolonged closure of country borders.

Source: Affin Hwang Research - 4 Mar 2021