Macquarie Equities Research (MQ Research) raised its target price (TP) on My E.G. Services (MYEG) to RM2.42 from RM2.36 with its bull case price of RM3.39 following MYEG’s bullish management guidance on road tax renewal market share for motorcyclists in the next five years. MQ Research also shared its forecasts and views on MYEG’s other business segments including Covid-related services and future e-government project, among others.

Bullish management guidance leads to TP upgrade

• Since the post results call, MQ Research now believes its initial assumptions for market share for road tax renewal for motorcycles for the Road Tax Department (JPJ) is overly conservative, and there are changes in the pricing mechanism of certain segments for MYEG’s covid tests.

Faster digital adoption, new service on the horizon

• JPJ services. Based on Q4 2020 results, MQ Research believes MYEG’s market share is ~10% for road tax renewal for motorcycles. MQ Research brings forward the duration for MYEG to reach ~50% market share for this segment from 8 years to 3 years as guided by management. MQ Research also increases the cross-selling opportunity for insurance for this segment from <20% to >55% post FY21E based on customer behaviour in Q420. MQ Research expects JPJ services to increase at a 17% compound annual growth rate (CAGR) in the next 4 years (38-42% revenue contribution).

• Covid services. MQ Research tweaks the covid test pricing structure where revenue recognition for the Antigen Rapid Test Kit (RTK) is 50% of its full price as the government is providing the test kits instead of MYEG. While MQ Research increases the expected number of tests in FY21E, this is mitigated by a lower price for RTK. Overall, MQ Research revenues estimates remain largely unchanged, +0.2% FY22E.

• Future e-government project, e-testing for JPJ? MYEG targets rolling out a new e-government project, which is comprised of an e-testing service for JPJ to automate the driving license process. MYEG plans to install Internet of Things devices for ~3,000 cars used for driving tests and expects to spend ~RM30mn in capex for this project. In terms of potential revenue, management is guiding ~RM100mn yearly potential revenue contribution (RM100 per driving test) once the project is deployed. This segment presents 6-10% upside to MQ Research’s valuation, which has yet to be factored into MQ Research’s numbers.

Earnings and Target Price Revision

• MQ Research reduces its FY21E/22E earnings per share (EPS) forecasts by -2%/-1%, respectively, based on FY20 results. MQ Research raises its TP from RM2.36 to RM2.42 given more aggressive assumptions for motorcycle road tax renewal. MQ Research’s bull case is RM3.39.

Price Catalyst

• 12-month price target: RM2.42 based on a discounted cash flow (DCF) methodology.
• Catalyst: tax exemption extension post April 2021, travel bubble reopening, faster adoption for existing services and securing new e-govt contracts.

Action and Recommendation

• MQ Research raises MYEG’s TP to RM2.42 (bull case RM3.39) implying a 2021E 31x price-to-earnings ratio (PER), slightly above its 5-year PER average of 26x.

12-month Target Price Methodology

• MYEG MK: RM2.42 based on a DCF methodology

Source: Macquarie Research - 17 Mar 2021