MyEG Services’s (MYEG) FY20 profit came 100%/101% of Macquarie Research’s (MQ Research) and street’s forecasts. Its 4Q20’s revenue and profit were driven by an increase volume in Covid-19’s health screening tests, higher online sales of groceries and online renewal of motorcycle insurance and road tax, among others. MQ Research maintains Outperform rating on MYEG with a target price of RM2.36.

Event

• MYEG’s FY20 profit came in at 100%/101% of MQ Research’s/street’s expectations. FY20 year-on-year (YoY) revenue and net profit increased by 11% and 9%, respectively. MYEG’s revenue/profit in 4Q20 grew 10%/7% quarter-on-quarter (QoQ) due to an increase in volume for Covid-19 health screening tests, higher online sales of groceries through “NakBeli”, higher-than-expected motorcycle’s road tax renewals, mitigating the decline from lower immigration services; permit renewal and job matching.

Impact

• What MQ Research likes. Aggressive campaigns for NakBeli via yearly subscription plans have contributed to higher sales. MQ Research understands MYEG processed approximately RM5mn in monthly sales from its NakBeli website. MQ Research has yet to include NakBeli in MQ Research’s forecasts. Secondly, higher adoption for motorcycle road tax renewals also contributed to higher QoQ sales at 2,000-3,000 road tax renewals per day (MQ assumes approximately 1,500 daily renewals). This presents further upside to MQ Research’s 6% est. market share FY21e (approximately 2,500 tests per day).

• What MQ Research doesn’t like. MQ Research understands MYEG’s initial target to achieve 500,000 Covid-19 tests came in short, and only approximately 300,000 tests were done in 2020. Although mandatory tests for foreign workers helped boost test volume, it was mitigated by lower-than-expected tests done by in-bound travelers as travelers could also carry out the test pre-arrival. However, MQ Research maintains its target of 740,000 tests FY21e. A lower YoY/QoQ margin reflects the company’s pivot towards lower margin Covid-related services.

• What’s interesting. MYEG has utilized approximately 25% of proceeds raised from Tranche 1 of its private placement, predominantly for the e-government fixed assets purchase. Healthcare and hostels utilisation is approximately 10%. MQ Research expects more utilisation for the healthcare segment in 2021 given intensity of new service launches (saliva-based tests).

Action and Recommendation

• Maintain Outperform with a target price of RM2.36.

12-month Target Price Methodology

• MYEG MK: RM2.36 based on a discounted cash flow methodology

Source: Macquarie Research - 4 Mar 2021