KUALA LUMPUR (June 11): My EG Services Bhd (MyEG) shares jumped as much as 10.95% in active trade this morning following the news that the e-government service provider intends to acquire 10% stake in S5 Holdings Inc — a company that specialises in IT and cybersecurity. 

The stock soared to an intraday high of RM1.52, against its yesterday’s closing price of RM1.37. 

At 11am, the counter pared some of its gains at RM1.45, after rising 5.84% or eight sen. Some 82.3 million shares changed hands within the first two trading hours, putting the stock on Bursa Malaysia's top 10 active list. 

To recap, MyEG announced that its wholly-owned subsidiary MYEG Capital has signed a share sale agreement with Merrington Assets Ltd (MAL) to acquire Labuan-based S5 for RM90 million. 

The acquisition will be settled via a combination of RM75 million cash and issue of new shares worth RM15 million.

S5 is a private company which is mainly involved in the provision of security technology, intellectual property as well as the development and customisation of solutions and systems, consultancy and support in all related information technology and security industries.

CGS-CIMB Research said the acquisition will strengthen MyEG's position in the e-government services sector. 

“MyEG believes the investment in S5 will provide synergy to its existing and prospective service offerings, especially within the immigration space in Malaysia. 

“This will strengthen the group’s position as the preferred e-government services provider in Malaysia. Moreover, S5 should be able to leverage MyEG’s track record, experience and capabilities as the flagship e-government service provider in Malaysia,” the research house noted in a note today. 

The stock brokerage added that MyEG stands to benefit from the potential listing of S5, which could materialise within the next two years. 

However, CGS-CIMB is keeping its earnings forecasts pending completion of the deal and reiterating “hold” with an unchanged target price of RM1.46. 

It said the target price is based on 22.4 times calendar year 2021 forecasts (CY21F) price-earnings (P/E), which is 40% premium over its technology sector target P/E of 16 times given MyEG's superior profit margin among domestic IT sector providers.

CGS-CIMB is now anticipating MyEG to generate an annual net profit of RM235.2 million for the financial year ending Dec 31, 2020 (FY20), RM234.2 million for FY21 and RM273.3 million for FY22. 

This translates into earnings per share of 6.5 sen for both FY20 and FY21 and further growing to 7.6 sen for FY22.  

For its cumulative 15-month result ended Dec 31, 2019, MyEG saw a net profit of RM304.59 million on a revenue of RM595.94 million. No comparative figures were available as the group changed its financial year-end from Sept 30 to Dec 31.

The stock has risen 81% from its recent low of 80 sen from March 23, Year-to-date, the stock has also gained 32% from RM1.10 on Dec 31, 2019.