Macquarie Equities Research (MQ Research) wrote a report early this morning pertaining My E.G.’s 3Q16 financial result with its net profit soaring 74.0% year-on-year (y-o-y), in-line with MQ Research’s forecast. In the research piece, MQ Research maintains its outperform rating and continues to like My E.G. for several reasons.

Event

• MYEG reported a record 3Q16 net profit of RM33.1m (+74% y-o-y, +9% q-o-q) on higher earnings from immigration and road transport businesses. Overall, the results were within MQ Research’s expectations.

 
‌Impact

• 9M16 net profit jump 103% y-o-y to RM91.9m on higher contributions from the immigration business. The cessation of over-the-counter foreign workers’ permits (FWP) renewal services in May 2015 channeled transactions onto My E.G.’s online portal. Together with the commencement of foreign worker rehiring programme (rehiring programme) in February 2016, MQ Research estimates the immigration business contributed over 60% of My E.G.  9M16 revenue, from 30% in FY15.

• Road transport business continues to grow. Meanwhile, MQ Research estimates that road transport revenue has grew by over 10% in 9M16 on higher transactions handled as the online portal continues to gain popularity.

• MQ Research expects stronger 4Q16 earnings on higher immigration revenue. While My E.G.’s 9M16 net profit only accounts for 55% of MQ Research’s full year earnings estimates, MQ Research deems the results are inline. MQ Research is expecting stronger 4Q16 earnings on: (i) pickup in registrations under the rehiring programme (MQ Research forecasts 500,000 registrations by end-June 2016); and (ii) normalisation of FWP renewal transaction volume. The uncertainties on foreign workers levy fees had disrupted transaction volume in February 2016 and early March 2016; the transaction volume has since recovered.

• Key catalyst / risk – the ongoing rehiring program. MQ Research has penciled in 500,000 registrations (under rehiring program) in FY16E and 500,000 in FY17E. Every 200,000 shortfall in the net addition of foreign workers will decrease MQ Research’s FY16-17E earnings per share (EPS) by 3%-4% and target price (TP) by 5sen - 6sen.

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Action and recommendation

• Maintain Outperform. MQ Research continues to like My E.G.  for its asset-light business model, high return of earnings (ROE) (>30%) and impressive three-year earnings compound annual growth rate (CAGR) of 61%.

Source: Macquarie Research - 31 May 2016