• 1QFY17 earnings surged by +28.5%yoy across the various business segments

• Earnings came in within our and consensus expectations

• Expect additional earnings stream from custom tax projects in 2HFY17

• Roll forward valuation base year to FY18 and upgrade to BUY with a higher target price of RM2.84 per share

Strong 1QFY17 performance. MY E.G. Services Berhad (MYEG) 1QFY17 earnings came in at RM40.5m, an increase of +42.2%yoy. This was mainly attributable to: i) higher transactional volumes from the online renewal of foreign workers’ permits and insurance and foreign worker rehiring programme services,

ii) increase in revenue contribution from JPJ related services, and

iii) contribution from Cardbiz holding Sdn Bhd.

Within expectations. All in, MYEG’s 1QFY17 financial performance came in within our and consensus expectations, accounting for 20.4% and 20.8% of full year earnings estimates respectively. We are expecting stronger 2HFY17 financial performance due to additional earnings stream from the Customs tax projects.

Earnings impact. No change to our FY17 and FY18 earnings estimates at this juncture.

Target Price. We roll forward our valuation base year to FY18, and derived a new target price of RM2.84 per share (previously RM2.16 per share). This is premised on FY18EPS of 10.8sen pegged to FY18 forward PER of 26.3x. Our target PER is based on its 3-year historical low PER.

Upgrade to BUY. MYEG has an attractive business model and strong cash-rich balance sheet. As at 1QFY17, it has a net cash position of RM49.7m. It is also enjoying an attractive profit margin of more than 50%. The upcoming implemention of the Customs tax projects would also reaffirm the group’s revenue and earnings growth trajectory. All factors considered, we upgrade our stock recommendation to BUY from NEUTRAL previously.

Source: MIDF Research - 30 Nov 2016