MYEG sees RM2.7b market capitalisation wiped out

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KUALA LUMPUR (May 14): MY E.G. Services Bhd (MYEG) saw nearly RM2.8 billion wiped out from its market capitalisation, no thanks to the sharp selldown on companies that are perceived to be linked to the previous government, Barisan Nasional, and UMNO after the victory of Pakatan Harapan. 

Adding to the selling pressure is that investors are concerned on possible loss of income when the new government removes good and service tax (GST), which is one of the promises it made to the rakyat. The company’s earnings prospects may not be as robust as before when GST is removed. 

CIMB Investment Bank downgraded the stock to “reduce” with target price of RM1.05, on possible loss of future earnings from its goods and services tax (GST) monitoring project, in which the tax is expected to be scrapped by the newly-formed government over the next 100 days.

Shares in the Main Market-listed MYEG was the third biggest loser on Bursa Malaysia and dropped 29.84% or 77 sen from its previous close of RM2.58.

As of 11:08am, MYEG was trading at RM1.81, the lowest in at least the last one year, and valued it at a market capitalisation of RM6.53 billion, Bloomberg data showed.

According to CIMB, MyEG’s GST monitoring project is at risk and “could be in trouble” after the Pakatan Harapan coalition won the 14th General Election.

“Pakatan Harapan indicated in its [election] manifesto that it is looking to cut [abolish] GST in the first 100 days,” CIMB analyst Nigel Foo said in a note to clients this morning. “If GST is abolished, we believe there might not be a need for MyEG’s GSTM project.”

So far, CIMB said MyEG has started the first phase of the GST Monitoring project, which involved the food and beverage sector, within the Klang Valley.

“GST Monitoring Phase 2 (which involves the retail sector), was also expected to start after GE14,” CIMB added.

Assuming that MyEG’s GST monitoring project does get cancelled, CIMB estimates MyEG’s earnings to be around RM250 million of net profit annually, mainly derived from foreign workers renewal permit services (FWPR) and sale of compulsory foreign workers insurance to employers.

“We believe MyEG’s existing services like online road tax renewal for cars and online FWPR services should continue even with Pakatan Harapan running the country. This is because there are not many alternative services for renewing road tax for cars as well as FWPR,” CIMB said.

Following the stock downgrade, CIMB has also slashed MYEG’s 12-month target to RM1.86, from an earlier forecast of RM2.58, which implied a 27.9% downside.

Meanwhile, CIMB believes that MyEG’s online service charges are inexpensive and efficient.

“For example, an online road tax renewal in Klang Valley only costs RM2.75 and an additional RM6 for delivery charges,” CIMB added.

As for its forecast, CIMB said it is maintaining MYEG earnings estimates.

“However, due to potential risks that the GST monitoring project (Phases 1 and 2) could be delayed or cancelled, we reduce our target price-earnings (P/E) for the stock from 20% premium to the target P/E for the technology sector (2019 25.2x P/E) to 30% discount to the technology sector target P/E (2019 15.4x P/E),” CIMB added.

At 15.x P/E valuation target, CIMB said MYEG could be worth around RM1.05.