Macquarie Equities Research (MQ Research) maintained an Outperform rating on My E.G. Services (MYEG) following its strong 1Q21 revenue and profit, mainly contributed by the health screening tests and motorcycle road tax renewals. MQ research believes these will continue to record higher volumes with the rising Covid-19 cases and the reintroduction of total lockdown which takes effect today. MQ Research’s target price for MYEG is RM2.42, 25.4% higher than yesterday’s closing price of RM1.93.

Good results driven by testing volume and road tax renewals

• MQ Research reiterates an Outperform recommendation on MYEG following 1Q21 results. 1Q21 profit came in at RM76mn, 26%/23% of MQ Research/street’s expectations. 1Q21 revenue/profit grew strongly at 41%/30% YoY due to an increase in Covid-19 health screening tests and higher-than-expected motorcycle road tax renewals, mitigating the decline from lower immigration services, i.e. permit renewals and job matching. Its online grocery service, BELI, was an added driver, as MYEG processed ~RM1mn in sales per month in 1Q21. MQ Research sees a 16% 20-24E profit compound annual growth rate (CAGR) providing upside to MYEG’s 19x 22E enterprise value/earnings before interest, taxes, depreciation and amortization (EV/EBITDA).

What MQ Research liked, what MQ Research didn’t like and what’s interesting

• What MQ Research liked. In-line with MQ Research’s expectations, MQ Research expects Covid-19 testing volume to contribute positively to MYEG’s 1Q21 results from the pent-up demand of migrant workers’ testing. MQ Research believes that testing rate momentum is still high in 2Q21 as Malaysia is undergoing intensive testing amidst rising infection cases and a full lockdown reintroduction. The full lockdown should boost online road tax renewals for both motorcycles and cars based on what MQ Research saw last year.

• What MQ Research didn’t like. The pivot towards Covid-related services, which is a lower margin business compared to its e-government services business for road transports or immigration services, is evident from lower profit margins seen this quarter.

• What’s interesting. Recently, MYEG announced more initiatives related to its healthcare segment by signing a Memorandum of Understanding with Breathonix to introduce a rapid breath test system for Covid-19 screening in Malaysia. The same test has been approved in Singapore. While commercial details are scarce, MQ Research believe the estimated launch price for the test is ~RM60. MYEG will need to get the necessary approvals from the Ministry of Health to launch it in Malaysia.

12-month Target Price Methodology

• MYEG MK: RM2.42 based on a discounted cash flow (DCF) methodology

Source: Macquarie Research - 1 Jun 2021