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Friday, 19 April 2013
PETALING JAYA: MyEG Services Bhd added two sen to 86 sen yesterday, after CIMB Research highlighted that two of its new online services were gaining traction.
In a report, the brokerage maintained its “outperform” call on the stock, three-year earnings per share growth forecast of 26.5% and target price of RM1.34, which implies an upside of 56% from its current price.
CIMB Research said that at a recent meeting the e-solutions provider pointed out that the take-up rate for MyEG’s foreign workers’ working permit renewal service was picking up, particularly among small and medium-scale enterprises (SME), although response from larger companies was slower, as expected.
“As such, it came as a positive surprise when the company indicated that it had recently secured a major contract from a plantation government-linked company (GLC) to handle working permit renewals for 20,000 of its foreign workers. However, management did not mention the name of this GLC,” CIMB Research said.
Malaysia currently had a foreign worker population of between 3.5 million and four million, a market that was worth RM174mil to RM200mil annually, the brokerage noted. The average fee per transaction is around RM50.
According to CIMB Research, the company’s plan was to first target the major players in the three key sectors of construction, plantations and services.
Initial interest, however, has come from SMEs, as they tend to be able to make decisions faster.
“Our earnings sensitivity analysis for this service showed that every 250,000 renewals annually should boost MyEG’s revenue by RM12.5mil and net profit by around RM5mil, assuming an average net profit margin of 40%.
“If history is any indication, then the take-up rate for this service would be slow in the first year but pick up pace from the second year onwards. We forecast MyEG handling only 100,000 foreign worker permit renewals in fiscal 2013,” said CIMB Research.
The research outfit also explained that MyEG’s online vehicle voluntary transfer system was gaining popularity with used-car and motorcycle dealers.
“Interestingly, the vehicle voluntary transfer system motorcycle market is growing faster than that of the car market, as most motorcycle transfers are done by the dealers and not by the banks.
“Among the commercial banks, Maybank’s branches have already started to use MyEG’s service nationwide and we expect the other commercial banks to follow suit over the next few months,” it said.
MyEG and DiGi had also launched in March a promotion that granted talk-time rebates to subscribers of the telco who renewed their road tax and insurance with MyEG.
With the collaboration, MyEG, whose own client pool numbers 2.6 million road tax renewals and 50,000 motor insurance renewals per year, hopes to tap DiGi’s 10.2 million prepaid and postpaid subscribers.
The company believes DiGi customers would need a few more months to warm up to the service.
Nonetheless, CIMB Research cautioned that the main risk for the stock remained the upcoming general election (GE).
“This is due to the perception that MyEG needs strong political connections to secure approval from the authorities for new services. We argue that MyEG is here to stay, regardless of which party wins the next GE.
“The company offers services that are more efficient, convenient and cheaper than existing services in the market. In addition, MyEG does not need any capital expenditure (capex) funding assistance from the Government. Since its inception, MyEG has been funding its capex programmes on its own.”
The brokerage added: “We like MyEG’s defensive and recurring income business model. Revenue growth over the next one to two years is expected to come from both existing and new services.”
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