MyEG Services Bhd
(Sept 7, RM2.60) 
Maintain add with a higher target price (TP) of RM3.92: Last Friday evening, MyEG Services announced that a consortium of companies, of which MyEG is one, received an appointment letter on Sept 4 from the Immigration Department to undertake the registration of illegal foreign workers in the country. This service will be an extension of the scope of the service provided by MyEG to the Immigration Department. 

The news was a positive surprise for us as it should boost foreign workers permit renewal (FWPR) transactions. In May, the government appointed MyEG to monitor, build and maintain a database for foreign workers in the country, which the company does via its online FWPR services. 

There are currently about 2.5 million documented, and four million to five million illegal foreign workers in the country. Working together with the authorities, we estimate that MyEG would at least register an additional one million undocumented workers over the next few months. 

We expect the authorities to launch an amnesty programme for undocumented workers soon. In the last 6P amnesty programme in 2013, we believe 1.2 million such workers were legalised and this time, it should be higher at around two million to three million. In our forecasts, we are only assuming a conservative additional one million undocumented workers using the FWPR services. Every additional one million FWPR transactions should boost MyEG’s revenue by RM100 million annually or RM47 million in net profit , 3.9 sen earnings per share (EPS) boost or 24% financial year ending June 30, 2016 (FY16) EPS rise. 

However, we believe MyEG may need to postpone the custom service tax monitoring (CSTM) launch from end-2015 to mid-2016, which is not a bad thing as the management could spread itself too thin managing both FWPR and CSTM at the same time. We are now assuming the CSTM launch from mid-2016 onwards. 

The additional FWPR revenue should more than compensate the loss of the CSTM revenue as a result of its delayed launch. The share price has been resilient over the past few months, perhaps an indication that “strong hands” are still holding on to the stock. The shares should see a new year-high once the local bourse stabilises. —CIMB Research, Sept 6

This article first appeared in digitaledge Daily, on September 8, 2015.