KEY INVESTMENT HIGHLIGHTS

• 3QFY20 normalised earnings came in +24.4%yoy higher at RM70.7m, supported by all of its local business segments

• Cumulative 9MFY20 financial performance of RM 192.7m came in within ours and consensus expectations

• International border closure to dim outlook for the its foreign worker related services

• Slowdown in oversea business, especially Indonesia, primarily due to the Covid-19 pandemic

• Downgrade to NEUTRAL with an unchanged TP of RM1.58

In-line with expectation. MY E.G Services Bhd’s (MYEG) 3QFY20 normalised earnings came in at RM70.7m, an increase of +24.4%yoy. This was mainly attributable to:

i) concession related services such as Immigration and JPJ related ancillary services;

ii) introduction of new concession services from JPJ, namel the online renewal of motorcycle insurance and orad tax as well as online renewal of Competent Driving License (CDL);

iii) commercial services such as motor vehicle trading related services, financing services, sale of tax monitoring system and foreign worker related services

iv) introduction of new services such as Covid-19 health screening as well as online sale of groceries thorough its “Nak Beli” online store; and

v) contribution from Cardbiz Group.

Cumulatively, the group’s 9MFY20 normalised earnings of RM192.7m (+11.3%yoy) came in within ours and consensus expectations, accounting for 74.8% and 74.1% of full year FY20 earnings estimates respectively.

Impact to earnings. We are keeping our earnings estimates unchanged at this juncture.

Target price. We are maintaining our target price of RM1.58. 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.

Downgrade to NEUTRAL. Generally, we expect the local business to remain resilient. Apart from shift in preference to the online services, the group has also introduced more online services from JPJ as well as new online service in relation to Covid-19. However, due to the closure of internal border we expect slowdown in earnings from foreign worker related services. In addition, there not been any update on the National Integrated Immigration System (NIIS) Project yet. We view that the project will only be awarded once the Covid-19 pandemic has subsided.

Moreover, in view of the Covid-19 pandemic, we also expect slowdown in its oversea business, especially Indonesia. To recall, in January 2020, MYEG has won a mandate to roll out its tax monitoring system to 30 cities in Indonesia. This could potentially impact the group’s oversea contribution. All factors considered, we are downgrading our recommendation for MYEG to NEUTRAL from Buy previously.

Source: MIDF Research - 25 Nov 2020