• The number of Covid-19 testing in Malaysia had increased sharply in 1Q21. This, and stellar contribution from MySafeTravel, should anchor MYEG’s 2021 revenue growth
• Management is eyeing several business prospects and we are particularly upbeat on its Road Transport Department’s e-testing work
• Maintain BUY. We anticipate MYEG’s valuation to re-rate, led by strong earnings growth, easing concerns over termination of its concessions, exciting new business prospects and high market liquidity

Number of Covid-19 Testing in Malaysia Has Grown by 140% Qoq in 1Q21

The Minister of Health reported a substantial increase in the number of Covid-19 testing in Malaysia during 1Q21 (+140% qoq). This should translate to higher revenue for service providers such as MYEG. While the number of Covid-19 testing may gradually taper off in 2Q21, its full-year contribution should still be materially higher than in 2020 (we expect MYEG’s Covid-19 testing revenue to double in 2021). Elsewhere, the MySafeTravel portal launched in November 2020 is coming along nicely and the business is on track to achieve our 2021 revenue forecast of RM35m.

Management Is Eyeing Several Business Prospects

MYEG is pursuing / working on a number of business prospects and we are particularly upbeat on the upcoming Automated Driving Test and Training System (etesting) that is to be introduced by the Road Transport Department (“RTD”). Elsewhere, the group is eyeing a role in the design / implementation / integration of the government’s vaccine passport system. While the vaccine passport system is still in the discussion stage among various governments and the countries have yet to agree on a framework / standards, we are hopeful that MYEG would play a role when the opportunity arises, given its expertise in this field and strong working relations with various government agencies (ie. Immigration, Ministry of Health).

We Forecast Strong EPS Growth of 17% in 2021, Maintain BUY

We maintain our earnings forecasts, anticipating MYEG to deliver 17% earnings growth in 2021E on the back of higher revenue (+33%, driven by new businesses and recovery in immigration sector) that more than offset higher taxation (expiry of pioneer tax status). Reiterate BUY with an unchanged price target of RM2.70 based on a 31x 2021E PER. Key re-rating catalysts: strong quarterly results, securing new government works (ie. e-testing, vaccine passports), unexpected extension of pioneer tax status and government announcement of GST reimplementation.

Source: Affin Hwang Research - 6 Apr 2021