KEY INVESTMENT HIGHLIGHTS

• Myeg raised fund for the hostel, healthcare-related services and e-government concession businesses

• First tranche of the placement has been completed, raising RM216.0m

• We view that the private placement is a better option of funding as compared to borrowings

• Nonetheless, these new developments would make the group more reliant on local contribution

• Maintain NEUTRAL with a revised TP of RM2.00

Fund raising. MYEG intends to place out up to 220m new Myeg share which represent up to about 6.29% of the total number of issued myeg shares (excluding the treasury shares). The proceed from the placement will be used to fund the development of hostels for foreign workers under an ongoing project, develop healthcare-related services, and to buy fixed assets like kiosks for the online renewal of car and motorcycle road tax under its e-government concession business.

Completion of first tranche. The book-building exercise in relation to the first tranche of the proposed placement has been completed. Under the proposed the first tranche of the proposed placement, Myeg will be issuing 120m new MYEG shares which represent about 3.43% of the total number of issued shares (excluding treasury shares) of Myeg. With this, Myeg has managed to raise RM216.0m.

Net cash position maintained. As at 3QFY20, the group net cash position stands at RM102.4m. Should Myeg raised the required fund through bank borrowings, Myeg would be left in a net debt position. Thus, we view that the proposed placement represents a better avenue to raise the required funding for expansion. Moreover, given the completion of the first tranche of the proposed placement, we view that the group would not have issue to place out additional shares as and when the need arises.

View. We view that the fund-raising exercise came in timely, especially for the development of hostels for the foreign workers as this would assist the foreign workers with better living condition. To recall, the Malaysian Human Resources Minister M Saravanan recently mentioned that about 91.1% or 1.4m foreign workers in Malaysia are not provided with accommodation that comply with provisions in the Workers' Minimum Standards of Housing and Amenities Act 1990 or Act 446. Meanwhile, the development of healthcare-related services and purchase of fixed assets for its e-government concession business would also take advantage of the Covid-19 pandemic.

Impact. We made no changes to our FY20 earnings estimates. However, we are raising FY21 and FY22 earnings estimates to RM313.0m and RM363.m respectively. Note that we are imputing higher earnings contribution from the Covid-19-related services, the road transport-related services and the foreign worker segments.

Target price. Subsequent to our earnings revision, we derive a new target price of RM2.00. This is premised on pegging FY21 EPS of 8.7sen against updated forward PER of 23x (previously RM21x). Our target PER is the group’s fiveyear historical average. The higher PER reflect the group’s aggressive effort to further diversify and intensify its income stream.

Maintain NEUTRAL. Premised on the above development, we view that Myeg would continues to record healthy earnings growth. This would also help to maintain the group’s favourable profit margin of about 50%. However, due to the closure of internal border we expect loss of 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 maintaining our NEUTRAL recommendation on the stock.

Source: MIDF Research - 10 Dec 2020