My E.G. Services Bhd
(June 1, RM2.57)
Maintain add with a target price (TP) of RM3.54: At 81% of our full-year forecast, MyEG Services’ annualised net profit for the first nine months ended March (9MFY15) was broadly in line with our estimate as we expect strong fourth quarter net profit from online foreign worker permit renewal (FWPR) services. 

We maintain our earnings per share forecasts and TP, based on an unchanged 21 times calendar year 2016 price-earnings ratio, in line with its peers’ average. The stock remains an “add”. Potential rerating catalysts are the successful launch of its customs service tax monitoring (CSTM) project by year-end and strong earnings from the FWPR service.

MyEG’s 9MFY15 revenue was up 29% year-on-year while net profit growth was a higher 34.6%. 

Higher profit growth was mainly due to greater economies of scale and contribution from its high profit margin online voluntary vehicle transfer services (VVTS) in FY15. 

No interim dividend per share was declared, which was within our expectations.

In May, MyEG finally resolved the FWPR service after the government decided to pay MyEG’s RM35 (RM3 discount to the earlier fee of RM38) per FWPR transaction. 

Other than the RM35 FWPR fee, MyEG gets an additional RM65 commission for being an independent insurance agent selling compulsory foreign worker insurance (total RM100 revenue per foreign worker). 

There are 2.5 million legal foreign workers in Malaysia and assuming a 90% take-up rate, the FWPR service could generate around RM225 million in revenue annually, and with a 40% net profit margin FWPR services could contribute RM90 million net profit annually to MyEG’s bottom line.

The mandatory use of MyEG’s CSTM has been postponed from end-March to end-September this year. The delay is, however, not a bad thing as this allows management to focus on delivery of the FWPR service.

CSTM phase 1 targets the food and beverage (F&B) sector (100,000 outlets) from which MyEG gets a RM1,000 fixed fee per F&B outlet. If all goes well, MyEG would launch CSTM phase 2 (500,000 outlets) in one year’s time, which targets the larger retail sector. — CIMB, May 31.

This article first appeared in The Edge Financial Daily, on June 2, 2015.