INVESTMENT HIGHLIGHTS

• 3QFY18 earnings improved by +8.6%yoy, supported by better earnings contribution across all business segments
• 9MFY18 earnings failed to kept pace with ours and consensus expectations
• Expecting future profit margin compression in view of the implementation of an open tender exercise
• Removal of GST to stunt future earnings growth
• Reiterate NEUTRAL recommendation with a revised target price of RM0.81 per share Double digit growth in revenue. MY E.G. Services Berhad (MYEG) reported 3QFY18 earnings of RM58.6m. This translates into an increase of +8.6%yoy. The improvement in earnings was mainly attributable to:

i) higher transaction volumes from the online renewal of foreign workers’ permits (FWP), foreign workers rehiring programme services (FWR services) and foreign workers insurance from both FWP as well as FWR services and;

ii) introduction of the foreign worker job matching and placement programme which commenced in 2QFY18; and

iii) increase in revenue contribution from motor vehicle trading related services.

Below expectation. Cumulatively, the group’s 9MFY18 earnings improved by +19.7%yoy to RM169.9m, in-tandem with the +19.6%yoy rise in 9MFY18 revenue to RM318.8m. This is below ours and consensus expectations, accounting for 65.6% and 66.0% of ours and consensus full year FY18 earnings estimates respectively.

Impact. We are adjusting downwards the contribution from across all the business segments to better reflect the results thus far. In addition, we also remove the contribution from GST which we initially expect to come into effect in FY19. As a result, FY18 and FY19 earnings forecasts have been revised lower by -11.1% and -59.2% respectively.

Target Price. Subsequent to our earnings adjustment, we are revising our target price to RM0.81 (previously RM2.47). This is premised on FY19 EPS of 3.8sen per share pegged to FY19 forward PER of 21.3x (previously 26.3x). Our target PER is one standard deviation below its three year historical average.

Source: MIDF Research - 31 May 2018