This article first appeared in The Edge Financial Daily on November 28, 2018
My EG Services Bhd
(Nov 27, RM1.08)
Maintain add with a target price (TP) of RM1.81: My EG Services Bhd (MyEG) is to provide real-time tax monitoring system in Indonesia. MyEG’s wholly-owned subsidiary My EG (Indonesia) Sdn Bhd signed a memorandum of understanding with PT Cartenz Technology Indonesia to invest up to 40% in Cartenz. MyEG plans to invest up to US$10 million (RM42 million) to buy a 40% stake in Cartenz. Cartenz and MyEG plan to jointly implement a real-time business transaction system for tax computation purposes in Indonesia. Cartenz has so far deployed tax monitoring systems to 5,000 businesses and provided its tax revenue systems to 76 local governments, including Jakarta and Bali.
This news is a positive surprise to us. The previous GSTM monitoring system in Malaysia was already in operations from 2018, and all teething problems have been resolved. As such, it should be relatively easy to adapt the system for use in Indonesia. In Malaysia, we understand MyEG had earlier invested RM150 million in the GSTM together with the dongles for GSTM phase one.
We believed MyEG and Cartenz could utilise the dongles for the Indonesian market. In Indonesia, the federal government requires a value added tax of 10% to be collected by businesses with annual revenue exceeding 4.8 billion rupiah (RM1.4 million). Additionally, provincial governments also have their own respective taxes and we understand MyEG and Cartenz would be working with the provincial governments to ensure they also meet the various provinces’ requirements.
We are unsure how many dongles would be installed in Indonesia eventually. For comparison, in the GSTM phase one in Malaysia, MyEG was supposed to have installed 50,000 dongles in the food and beverage outlets across the country. Malaysia has a population of 31.6 million versus Indonesia’s 265 million, some eight times larger. In our view, success in Indonesia could therefore position MyEG as a strong e-government service contender in other Asean countries.
We maintained our earnings per share forecasts and TP, based on 21 times 2019 forecast (FY19F) price-earnings (PE) (a 40% premium to our technology sector FY19F PE target of 15 times). The stock is not expensive at FY19F 13 times PE. MyEG remains an “add”. Potential rerating catalysts are a stronger-than-expected registration of new foreign workers in Malaysia and securing the sales and services tax monitoring contract. Downside risks to our call include the lack of new projects and weaker-than-expected earnings. — CGSCIMB Research, Nov 26