INVESTMENT HIGHLIGHTS

• Cumulative 1HFY19 earnings amounted to RM116.7m which came in broadly within our expectation

• Sustaining its profit margin at approximately 50%

• Oversea ventures will enable the group to organically grew its earnings

• Maintain BUY with an unchanged target price of RM1.60

Stable earnings. MY E.G. Services Berhad (MYEG) posted resilient 2QFY19 earnings of RM58.0m. This is despite higher effective tax rate of 6.2% as compared to 1QFY19 of 1.7%. MYEG’s earnings was mainly arising from: i) concession related services such as Immigration and JP related and ancillary series; ii) commercial services such as motor vehicle trading related services, financing services, sale of tax monitoring system as well as contribution from Cardbiz Group.

Within expectation. Cumulatively, MYEG’s 1HFY19 earnings amounted to RM116.7m. This came in broadly within ours but below consensus expectations, accounting for 44.2% and 42.9% of full year FY19 earnings estimates.

Target Price. We maintain our target price of RM1.60. This is premised on FY20 EPS of 7.6sen per share, pegged to unchanged forward PER of 21x. Our conservative target PER is one standard deviation below its three year historical average.

Maintain BUY. MYEG has an attractive business model which reaps healthy profit margins of about 50%. Locally, management will continue to roll out new e-government services whilst maintaining the current service levels. Meanwhile, we remain positive on the group’s strategy of monetising its expertise the region. This includes the Republic of the Philippines, People’s Republic of Bangladesh and the Republic of Indonesia. This would enable to the group to continue to grow its earnings organically. In addition, the group’s effective tax rate is low due to tax incentives. Taking into consideration all the above-mentioned factors, we are maintaining our BUY recommendation on the stock.

Source: MIDF Research - 31 May 2019