My E.G. Services Bhd (Trading Buy)

• MYEG is a provider of electronic government (e-government) services with a presence in Malaysia, Philippines, Bangladesh and Indonesia.

• With annual net earnings in excess of RM100m over the past four years, the Group’s historical profit track record has been steady. After posting net profit of RM58.8m in 1QFY20, consensus is projecting MYEG’s bottomline to come in at RM262m in FY20 and RM296m in FY21. This translates to forward PERs of 19.2x this year and 17.0x next year.

• In terms of corporate developments, MYEG (together with its business partners) plans to undertake a reverse takeover exercise involving a proposed acquisition by ACE Market-listed Ancom Logistics of the entire share capital of S5 Holdings (S5, a service provider of national security solutions). MYEG currently holds a 10% stake in S5, which reportedly has emerged as a frontrunner to win the National Integrated Immigration System (NIIS) project.

• Technically speaking, MYEG’s share price – which has been consolidating since early July – is on the verge of a potential breakout from a symmetrical triangle formation. Guided by this bullish continuation pattern, we expect the stock to climb towards our resistance thresholds of RM1.59 (R1) and RM1.69 (R2). This represents upside potentials of 10% and 17%, respectively from yesterday’s closing price of RM1.45.

• Our stop loss level is pegged at RM1.32 (9% downside risk).

Scicom (MSC) Bhd (Trading Buy)

• SCICOM is principally involved in: (a) business process outsourcing (BPO); (b) digital marketing & e-commerce; (c) digital government; and (d) education (corporate training & English language testing).

• On the news front, the Company has recently signed an agreement with ACE Market-listed Microlink Solutions to set up a 50:50 joint venture company to bid for tenders for e-government solutions and services in Malaysia.

• The Group has been profitable with annual net earnings ranging between RM20m and RM45m over the last five years. It made net profit of RM5.1m (+24% YoY) in 3QFY20, taking its 9-month results to RM17.7m (+14% YoY). Based on consensus net profit expectations of RM20m in FY21, forward PER works out to be 16.7x.

• Financially, the Group is debt-free with cash backing of RM38.9m (or 11 sen per share) as of end-March 2020.

• On the chart, after hitting a high of RM1.16 about one month ago, SCICOM shares have slipped gradually to as low as RM0.90 (which coincides with the Fibonacci retracement line of 38.2%, as measured from the trough of RM0.48 in March to its recent peak). This suggests its uptrend is still intact.

• In the wake of renewed buying interest, which has pushed the stock up 3.3% to close at RM0.94 yesterday on high volume, SCICOM’s share price could continue its upward journey to rise towards our resistance thresholds of RM1.07 (R1) and RM1.23 (R2). This represents upside potentials of 14% and 31%, respectively.

• We have set our stop loss level at RM0.86 (or 9% downside risk).

Source: Kenanga Research - 25 Aug 2020