MYEG, an e-Government services provider, is still getting traction from its immigration-related services. Meanwhile, the new GST Electronic Monitoring System (GEMS) services could be the rerating catalyst that will further supercharge its already resilient earnings prospect. A recent 1-for-2 bonus issuance which will improve trading liquidity is also an additional sweetener. Hence, we are revisiting MYEG for the above-mentioned catalysts that should anchor a two-year NP CAGR of 36%. Recommending TRADING BUY with a Fair Value of RM2.80 (+26% total upside) based on 25.5x FY18E PER, which is the group’s 3-year average forward PER.

Still shining. Recall that we had featured this gem previously and managed to lock in total capital gain of c.60%. Since then, it has continued to outperform and registered supernormal earnings in FY16, driven mainly by higher transaction volumes from the online renewal of Foreign Worker Permits (FWP) and foreign worker rehiring programme (PATI) services. On its latest FY16 results, even after the robust 3-year NP CAGR of 51% from FY12, growth still remains stellar with NP doubling to RM143.0m, on the back of solid revenue growth (+99%) as well as stable EBITDA margin (-0.6ppts to 57.7%). Looking ahead, with its resilient earnings prospects coupled with the new rerating catalysts, we re-initiate a TRADING BUY position with a FV of RM2.80.

Still ample room for growth from Immigration services. Since MYEG was appointed the sole listed company to handle the renewal of FWP and insurance in early 2015, alongside with the rehiring programme for illegal immigrants (PATI), the group’s FY16 revenue from this segment jumped by four folds, making it the lion’s share revenue contributor for the group (at 65% from previous year’s 30%). Note that the group has registered 300k illegal foreign workers (out of the reported numbers of 1.4m estimated illegal foreign workers by press media) as of FY16 under its PATI programme. While this programme has ended in Jun 2016 (according to the deadline set earlier), we were positively surprised to gather from MYEG website that the rehiring programme is still ongoing. Given that the Cabinet is lifting the freeze on hiring foreign workers for manufacturing, construction, plantation and furniture-making industries as well as the still huge numbers of illegal foreign workers, we believe there is still ample room of growth from this segment. In our earnings model, we have assumed an additional 400k illegal and legal workers each year renewing their permits and insurance through MYEG’s online portal in FY17 and FY18.

GST Electronic Monitoring System (GEMS) services- the potential key catalyst going forward. GEMS services (the upgraded version from the previous CSTM services) is expected to be launched in two different phases, Phase 1 and Phase 2. Phase 1 which could see a rollout as soon as Jan 2017, involves the monitoring of GST collection in categories C and D (restaurants, pubs and massage parlours) with annual revenue of >RM500k (c.50k outlets). Meanwhile, Phase 2 (to roll out as soon as Jan 2018) will be extended to the retail sector (c.500k). Revenue-wise, we understand that it will be based on fixed fees payable by Government, by RM1,000 per outlet based on compounding 10% GST revenue collected from the 12 months preceding the deployment of GEMS services. To be on the conservative side, while we have yet to impute the impact into our earnings model, the potential sales contribution which could see RM50m in Phase 1 and RM500m in Phase 2 would be a huge booster to the group’s earnings.

TRADING BUY; FV of RM2.80. We are projecting the group to register a 2- year NP CAGR of 36% with key earnings assumptions being; (i) additional 400k illegal and legal workers renewing their permits and insurance through MYEG’s online portal in FY17 and FY18, (ii) organic growth assumption of 10% annually from JPJ, Insolvency and other segments as well as (iii) EBITDA margin assumption of 56.5-57.8% which is at the mid-range of 56- 61% for the past five years. We value MYEG at RM2.80/share based on a 25.5x FY18E PER, which is the group’s 3-year average forward PER.

Source: Kenanga Research - 27 Sep 2016