INVESTMENT HIGHLIGHTS

• Cumulative 9MFY19 earnings amounted to RM116.7m which came in below ours and consensus expectations

• Profit margin remains below 50% in recent quarters

• No significant progress from its oversea ventures

• Downgrade to NEUTRAL with a revised target price of RM1.60

Resilient earnings. MY E.G. Services Berhad (MYEG) posted resilient 3QFY19 earnings of RM58.2m, a marginal increase of +0.3%qoq. This was mainly supported by tax income of RM1.3m as oppose to tax expense of -RM3.8m. 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.

Below expectation. Cumulatively, MYEG’s 9MFY19 earnings amounted to RM174.9m. This came in below ours but below consensus expectations, accounting for 66.2% and 67.6% of full year FY19 earnings estimates.

Impact. Given weaker-than expected earnings, we are reducing FY19 and FY20 earnings estimates to RM241.4m and RM250.3m respectively. Note that we are imputing lower topline growth and more conservative profit margin assumption of less than 50%.

Target Price. Post our earnings adjustment, we are reducing our target price to RM1.45 (previously RM1.60). This is premised on FY20 EPS of 6.9sen per share, pegged to unchanged forward PER of 21x. Our conservative target PER is one standard deviation below its three year historical average.

Downgrade to NEUTRAL. MYEG has an attractive business model which garner healthy profit margin. However, in the recent quarters we notice that the profit margin has been consistently below 50%. In addition, its quarterly earnings have been relatively stagnant.

Source: MIDF Research - 30 Aug 2019