INVESTMENT MERIT

- Good earnings track record with a stable income generation profile.  My E.G. Services (MyEG) is an underresearched growth stock with a good earnings track  record backed by recurring income streams. The group’s NP has shown a 5-year CAGR of 31% (FY07-FY12), underpinned by the increasing online renewal of road tax, automobile insurance, driving license with the Road Transport Department of Malaysia as well as the rising take-up of new online maid permit renewal services with the Immigration Department of Malaysia, etc. We view all these businesses to be defensive in nature.

- Huge revenue to be reaped from its potentially lucrative market. MyEG’s top line could see another robust growth should its newly-launched services namely the online foreign workers permit renewal (FWPR) and Customs Service Tax Monitoring (CSTM) (which is still pending the government’s approval) gain traction. For FWPR, assuming a conservative number of c.2m legal foreign workers with an average RM50 per renewal, the potential market size of c.RM100m alone is already more than the group’s FY12 revenue. Meanwhile, we understand that the CSTM project is targeting to link c.100k point of sales terminals at the country’s c.20k restaurants and entertainment outlets to monitor the government’s mandated service tax transactions electronically. MyEG, through its consortium, will receive a 20% of the additional service tax collected at restaurants and entertainment outlet annually after the tax base has been established.

- Strong balance sheet and net cash position to support its minimum 30% dividend payout policy.  The group is in a net cash position of RM3m as at end of 2012. We understand that MyEG intends to maintain a minimum dividend payout ratio (DPR) of 30%. If we were to take the FY14 consensus EPS estimate of 7.6sen, a 30% DPR will come up to a 2.3 sen DPS, translating into a 1.7% dividend yield.  

- Potential fair value of RM1.54.  We value the stock at RM1.54/share at 21.4x FY14 PER, which is at a +2SD  level above its 3-year average forward PER as we believe  that the potential robust revenue growth from its new services as well as its recurring income profile deserve a premium valuation. Note that we have yet to impute any earnings from the CSTM concession in our forecasts.

SWOT ANALYSIS

- Strength: Market leader in governmental e-services

- Weaknesses: Single country market

- Opportunities: Higher adoption of online transaction

- Threats: Major changes in government structure

TECHNICALS

- Resistance: R1: RM 1.50, R2: RM 2.00

- Support: S1: RM1.10; S2: RM 1.30

- Comments: Post-elections, MYEG share price surged by 85% to close at RM1.38 yesterday. In spite of the overbought signals on the Stochastic and RSI indicators, the overall technical picture remains intact. Thus, we suggest a “Buy-on-Weakness” strategy closer to the  RM1.20/ RM1.32 support levels.

Source: Kenanga