This article first appeared in The Edge Financial Daily on June 5, 2018
MyEG Services Bhd
(June 4, 68.5 sen)
Maintain add with an unchanged target price (TP) of RM1.22: According to a local newspaper, MyEG Services Bhd (MyEG) will see its contract with the Immigration Department to carry out the government’s rehiring of illegal foreign workers (IFW) programme terminated by end-June. The company, together with vendors Iman Resources Sdn Bhd and Bukti Megah Sdn Bhd will see their contracts eventually ending, an online news portal quoted Immigration Department director general Datuk Seri Mustafar Ali as saying. The rehiring programme started in February 2016.
According to another paper, MyEG said it stopped new registrations for the rehiring programme at end-December 2017 and was given until end-June to process incomplete cases. “Other services under the Immigration Department are operating as normal,” MyEG managing director Wong Thean Soon was quoted as saying. The termination of the rehiring programme is not a surprise. The programme was supposed to be terminated at end-2017 but it was extended to end-June due to backlog cases. MyEG’s existing services, such as car road tax/insurance renewal and foreign worker working permit/insurance renewal, are not affected and remain “business as usual” for the company.
We maintain our earnings per share forecasts for MyEG. We have assumed in our earnings projections for the financial year ending June 2018 (FY18) to FY20 that the car road tax/insurance and foreign worker permit/insurance renewal services will continue but that the goods and services tax monitoring project will be cancelled. Earnings growth over the next one to two years is expected to come from its new foreign worker-employer matching services, which started at end-2017. We estimate that MyEG matches 5,000 IFWs with potential new employers monthly, and the company gets RM1,000 per completed IFW match.
We believe MyEG’s share price has bottomed after overcoming its immediate-term resistance trend line at 77.5 sen last Thursday. This immediate-term bottom line was supported by the high trading volume of around 600 million shares. The daily relative strength index remains oversold at only 19.9 points, an indication the stock is long overdue for a technical rebound. Our TP basis remains the technology sector’s 2019 price-to-earnings target of 15 times. A rerating catalyst is the company winning a contract for monitoring sales and service taxes, while a downside risk is liberalisation of the industry, which may open MyEG’s niche segment to other players. — CGSCIMB Research, June 4