INVESTMENT HIGHLIGHTS

• 4QFY18 earnings declined by -5.7%yoy in view of higher operating expenses

• 12MFY18 earnings of RM426.2m kept pace with ours but fell below consensus expectations

• Full year FY18 dividend payment met our full year estimate of 1.9sen per share

• Maintain NEUTRAL with a revised target price of RM1.55

Double digit growth in revenue. MY E.G. Services Berhad (MYEG) reported lower 4QFY18 earnings of RM56.1m (-5.7%yoy). The decline in earnings was mainly attributable to lower profit margin of 53.2% (vs 4QFY17: 56.6%) in view of higher operating costs. These costs mainly comprise of:

i) personnel related expenses and operating expenses;

ii) maintenance and operating expense for MYEG Tower; and

iii) depreciation and amortization charges.

Kept pace with our expectation. Cumulatively, the group’s 12MFY18 earnings improved by +12.4%yoy to RM226.5m, in-tandem with the +14.7%yoy rise in 12MFY18 revenue to RM426.2m. Based on previous financial year ending June 2018, the group’s 12M financial performance came in within ours but fell below consensus expectations, accounting for 98.4% and 92.2% of full year FY18 earnings estimates respectively.

Dividend. The group announced final dividend payment of 1.4sen per share. This led to full year FY18 dividend payment of 1.9sen per share which met our full year FY18 dividend estimates.

Impact. We are adjusting FY18 and FY19 upwards to RM256.0m and RM264.0m respectively. This is to take into the account the change in financial year end from June to September. In addition, we also incorporate the contribution from the tax monitoring system project.

Target Price. Subsequent to our earnings adjustment, we revised our target price to RM1.55 (previously RM0.81). This is premised on FY19 EPS of 7.3sen per share pegged to unchanged FY19 forward PER of 21.3x. Our target price is one standard deviation below its three-year historical average.

Maintain NEUTRAL. MYEG has an attractive business model which reaps healthy profit margins of more than 50%. This will also be further supported by the foreign worker job matching and placement programme and hostel accomodation business. In addition, MYEG’s experience in building tax monitoring system, would place the group in a better position to clinche the SST monitoring project. However, we expect the group’s profit margin to be adversely impacted by the government’s implementation of an open tender exercise as a policy to improve corporate governance. Meanwhile, dividend yield is also expected to remain unattractive at approximately 1.0%. Taking into consideration all the above-mentioned factors, we are maintaining our NEUTRAL recommendation on the stock.

Source: MIDF Research - 3 Sept 2018