KEY INVESTMENT HIGHLIGHTS

• 4QFY19 normalised earnings remain resilient, declining marginally by -2.3%yoy to RM56.9m

• Nonetheless, 12MFY19 normalised earnings of RM231.8m, came in within our expectation

• Expecting higher contribution from the oversea venture in the coming quarters

• Healthier balance sheet to fund future investment

• Upgrade to BUY with a revised TP of RM1.49

Within expectation. MY E.G Services Bhd (MYEG) posted resilient 4QFY19 normalised earnings of RM56.9m, a slight decline of -2.3%yoy. Cumulatively 12MFY19 normalised earnings amounted to RM231.8m. This was primarily attributable to: i) Concession related services such as Immigration and JPJ related ancillary services; and ii) Commercial services such as motor vehicle trading related services, financing services, sale of tax monitoring system, foreign worker recruitment and placement related services as well as contribution from Cardbiz Group. All in, the group’s 12MFY19 financial performance came in within ours but below consensus, accounting for 96.0% and 90.9% of our earnings estimates.

Impact to earnings. While the earnings came in within our expectation, we are adjusting our FY19 and FY20 earnings estimates to reflect the recent change in financial year end to December. As such, there will be 5 quarters in FY19 before normalising from FY20 onwards.

Target price. Post our earnings adjustment, we are revising our target price to RM1.49 (previously RM1.45). This is premised on FY20 EPS of 7.1sen, pegged to unchanged forward PER of 21x. Our target PER is the group’s three year historical average.

Upgrade to BUY. We expect the local business to remain resilient, in view of the good track record of providing the online services. Moving forward, we expect the group’s earnings growth will stem from the group’s effort to replicate its offerings in the region. The effort has started to bear fruit as seen in its latest progress in the Philippines. To recall, MYEG Philippines has commence the first phase of its online services in partnership with Land Bank of the Philippines to offer e-govt services to the people of the Philippines in transacting with the government. We believe the move would also help to reduce the group’s reliance on the local market. Meanwhile, MYEG business model remains attractive which garner healthy profit margin of about 50%. All factors considered, we are upgrading our stock recommendation to BUY from Neutral previously.

Source: MIDF Research - 29 Nov 2019