Recently, MY E.G. Services (MYEG) announced its 2Q21 net profit rose by 28% year-on-year (YoY) to RM80.68mil while its revenue surged 30% YoY to RM161.73mil, driven by its new concession and commercial services, along with an overall rise in online transaction volumes, among others. (The Star, 24 Aug).

Following this, Macquarie Equities Research (MQ Research) reiterated its Outperform recommendation on MYEG as the results were largely in-line with its expectations, while expecting stronger results in 3Q21. MQ Research also discussed what’s interesting and its views on MYEG’s current business situation. MQ Research’s target price on MYEG is RM2.43, which is 24% higher than yesterday’s closing price of RM1.96 (+6.0%).

Within expectations, expect better 3QFY21E results

• MQ Research reiterates an Outperform recommendation on MYEG following 2Q21 results. MYEG’s 1H21 profit of RM157mn came in at 47% of MQ Research and 49% of consensus estimates, largely in line with MQ Research’s expectations as MQ Research expects stronger 3Q results. 1H21 revenue/profit continues to grow strongly at 35%/ 29% YoY since 1Q21 due to an increase in Covid-19 health screening tests and online motorcycle road tax renewals. MQ Research sees 16% 20-24E profit compound annual growth rate (CAGR) providing upside to MYEG’s 19x 22E enterprise value to earnings before interest, taxes, depreciation, and amortisation (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 expectations, Covid-19 tests volume has contributed positively to earnings due to spike in cases in Malaysia from the delta variant and various government initiatives mandating Covid-19 tests as part of reopening. Besides that, sequential revenue was also contributed from higher online services for road tax renewal for cars and motorcycles. Moving forward, MQ Research expects to see stronger 3QFY21E given the recent announcement by Road Transport Department (RTD) that all road users’ licenses (cars and motorcycles) must be renewed by 30 Sept 2021 (link here), further boosting its road transport segment.

• What MQ Research didn’t like. Margins continue to decline from business diversification towards healthcare, but this is within MQ Research’s expectation.

• What’s interesting. MYEG recently announced decentralised finance (DeFi) products to users of Malaysia’s digital asset exchanges (link here). From MQ Research’s understanding, no additional licenses are needed from the Securities Commission and MYEG already has a moneylending license under the Moneylenders Act 1951 to carry out its services. MYEG plans to monetise its DeFi schemes through lending the funds collected from depositors out to crypto borrowers, who will be charged interest. The borrowing/lending spread will be an income source for MYEG. Though nascent, MQ Research views this interesting development as supporting the crypto-related plans that MYEG has.

Action and Recommendation

• Outperform maintained.

12-month Target Price Methodology

• MYEG MK: RM2.43 based on a Total Shareholder Return methodology

Source: Macquarie Research - 25 Aug 2021