In this pandemic, MYEG stands to benefit from back-to-back catalysts starting from Covid-19 control (testing & quarantine revenue) to recovery phase (vaccine distribution & immunity passport) and eventually back to normalcy (return of foreign workers and job matching volume). Besides, there are also other positive developments such as digital driving test, renewal of its pioneer status, new cryptocurrency, bonus issue and extension of JPJ services to motorcyclists. This is a “Not-Rated” thematic note.

Phase 1 (high Covid-19 cases): During this period, MYEG benefits from Covid-19 testing revenue as the HR minister made screening mandatory for all foreign workers by 31 Mar 2021. At the same time, the group also earns from quarantine arrangements for inbound travellers (MySafeTravel) and locals (SafeQ). Recently, the group has also introduced at-home saliva-based Covid-19 testing kit which is painless compared to RT-PCR with home delivery option.

Phase 2 (recovery): MYEG intends to partner with Anhui Zhifei to be the sole distributor of its protein-based (which is safer) and HALAL vaccine in Malaysia, once it is approved. The group is also in a good position to be involved in the rollout of vaccine/immunity passports for international travel. To issue a vaccine/immunity passport, the government needs to verify: (i) Covid-19 testing results and (ii) vaccination records, and MYEG possess exactly both of these components as mentioned above. To ensure authenticity, MYEG will develop a platform based on block-chain technology to avoid records falsification and vaccine/immunity passport forgeries.

Phase 3 (back to normalcy): From our conversations with multiple manufacturers, we gather that there is currently a production bottleneck due to limited availability of foreign workers. This means that once borders fully reopen, we are likely to see pent-up volumes in MYEG’s foreign worker permit renewal and job matching services. Foreign workers-related revenue accounts for c.50% of group revenue. Note that even in this period, there is a possibility that testing, vaccination and immunity passports could be new norms if Covid-19 infections persist.

And the catalysts list goes on… MYEG is in talks with JPJ to digitalise driving tests by installing 2-3k sensors/cameras in test vehicles. With a fee of RM100/test, 1m annual tests will translate into RM100m revenue potential. The renewal of its pioneer status in coming months will allow the group to continue enjoying favourable tax rates. MYEG’s development of a cryptocurrency (stablecoin) that is pegged to MYR, targeted to launch in 2H 2021, could be a valuation kicker and also offers a thematic investment angle as crypto/digital currency is becoming increasingly popular. The 1:1 proposed bonus issue will serve as a sweetener for market participants, improving liquidity and affordability. There is also no more sentiment overhang following the JPJ concession renewed by MOT in Dec 2020.

This is a “Not Rated” thematic note. We like the space that MYEG is in and its recent developments that allow the group to benefit from almost all situations and timelines in the Covid-19’s path to normalcy.

Risks include unexpected cancellation of contracts and failure to extend existing concessions.

Source: Kenanga Research - 31 Mar 2021