KEY INVESTMENT HIGHLIGHTS

• Marginal improvement in 1QFY20 normalised earnings of RM59.0m, mainly led by lower effective tax rate

• 1QFY20 financial performance came in within ours and consensus expectations at 22.9% and 22.2% respectively

• Business resiliency despite the Covid-19 crisis as 1QFY20 revenue remained steady at RM121.7m

• Regional expansion will gradually reduce reliance on locally generated income

• Maintain BUY with a revised TP of RM1.58

In-line with expectation. MY E.G Services Bhd (MYEG) posted resilient 1QFY20 normalised earnings of RM59.0m, a marginal increase of +1.6%yoy. This was mainly led by lower effective tax rate of 0.6% (vs FPE 31st March 2019: 6.2%). Nonetheless, the resilient earnings was primarily attributable to: i) concession related services such as Immigration and JPJ related ancillary services; ii) commercial services such as motor vehicle trading related services, financing services, sale of tax monitoring system, foreign worker recruitment and placement related services ; and iii) contribution from Cardbiz Group. All in, the group’s 1QFY20 financial performance came in within ours and consensus expectations, accounting for 22.9% and 22.2% of full year FY20 earnings estimates.

Impact to earnings. We are maintaining our earnings estimates at this juncture.

Target price. We are rolling forward our valuation base year to FY21 and derive a new target price of RM1.58 (previously RM1.49). This is premised on FY21 EPS of 7.5sen, pegged to unchanged forward PER of 21x. Our target PER is the group’s three year historical average.

Maintain 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 Indonesia and the Philippines. We believe the move would also help to reduce the group’s reliance on the local market. On another note, MYEG business model remains attractive which garner healthy profit margin of about 50%. All factors considered, we are maintaining our BUY recommendation on the stock

Source: MIDF Research - 30 Jun 2020