Exit or stay with MyEG?

  • Business
  • Saturday, 26 Sep 2015

MYEG Services Bhd has been on an almost non-stop upward trajectory since 2013. It was the best performing stock in 2014, and even this year with the FBM KLCI underperforming the region, MyEG is still up 27.01% on a year to date basis at its last done price of RM2.68.

The company piqued investor interest when it started making its mark as a concessionaire for Malaysia’s various electronic government flagship applications. In 2012, the company was hovering around the 30-sen level, By March 2013, the stock started its upward trajectory from 40 sen, and well, this uptrend has apparently yet to end.

At RM2.68, the stock has made patient investors who held at the 40-sen level 5.7 times richer.

Is it time to call it quits or is there more upside?

At its current price, the stock is trading at a rich price earnings ratio (PER) of 47.02 times. However, this PER is estimated to drop significantly to 18.48 times for its next financial year (FY) ending June 30, 2016. Analysts are forecasting a large jump in its earnings by next year on contributions of its foreign workers permit renewal services (FWPR).

Currently there are only two research houses covering the stock, CIMB and Macquarie Research. Both have buy calls, with CIMB giving a target price of RM3.92, while Macquarie has a target price of RM3.17.

MyEG has been recording above average margins due to the nature of its service business. For instance, net profit margins recorded in FY12, FY13 and FY14 were 40.9%, 45.6% and 43.7% respectively.

While margins were growing, so was the company’s revenue. Over that same period, revenue grew by 13.8%, 14.3% and 43% respectively. Its revenue grew as the company won new contracts. This could be perhaps why the stock’s higher PER is somewhat justified.

The stock today has a market capitalisation of RM3.22bil and a five-year dividend growth yield of 25.73%,

Moving forward, the catalysts for MyEG are its FWPR services as well as its newly-acquired card payment and terminal business. In fact, MyEG is aiming for the card payment and terminal business to contribute some 70% of its total revenue over the next three years.

MyEG is Malaysia’s e-Government services provider. The group’s services facilitate e-Government services between the public and various government agencies, namely Jabatan Pengangkutan Jalan, Jabatan Pendaftaran Negara, Polis DiRaja Malaysia and the Immigration Department among others.

For the fourth quarter to June 30, 2015, MyEG’s net profit was up 37.99% to RM22.95mil on the back of a 27.4% jump in revenue to RM45.06mil.

The revenue expansion during the period was attributable to higher volumes from services related to the online renewal of foreign workers’ permits, continued growth in volume from online renewal of motor insurance and road tax and a gain from revaluation of its start-up investment.

For the full year, net profit was up 35.98% to RM68.14mil on the back of a 28.8% increase in revenue to RM141.52mil.

The company had also recorded a gain of RM6.70mil from the revaluation of its start-up investments.

Thus basic earnings per share jumped from 4.2 sen to 5.7 sen after taking into consideration the adjustment arising from the bonus issue during the current financial year.

MyEG also declared a final dividend of 1.4 sen per share. Together with the interim dividend of 0.5 sen per share paid on May 21 2015, the group’s total dividend declared in respect in FY15 amounts to 1.9 sen, translating to dividend payout of RM22.8mil, or 30.5% of its FY15 full year income.

In one of its latest announcements on Sept 4, MyEG announced that a consortium of companies, of which MyEG is one of the member, has received an appointment letter from the Immigration Department to undertake the registration of illegal foreign workers in the country.

The project will be an extension of the scope of service provided by the company to the Immigration Department of Malaysia.

The tenure of the project commences from Sept 4 to March 4, 2016.

This project is expected to contribute positively to the earnings of the company, as it is expected to increase the total number of legal foreign workers in the country, hence increasing the fees generated from the online renewal of foreign workers permit.

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.

According to CIMB Research, there are currently about 2.5 million documented and 4 million to 5 million illegal foreign workers in the country.

Working together with the authorities, CIMB Research estimates that MyEG will at least register an additional 1 million undocumented workers over the next few months.

“In our forecasts, we are only assuming a conservative additional 1 million undocumented workers using the FWPR services. Every additional 1 million FWPR transactions should boost MyEG’s revenue by RM100mil annually or RM47mil in net profit,” said CIMB Research.

This would translate to an earnings per share boost of 3.9 sen or a 24% rise in its FY16 earnings.

Cardbiz – new income stream

On another significant development, MyEG announced on Aug 28 that the proposed acquisition of 61.61 million shares or a 55% stake in Cardbiz for RM6.23mil has been completed, and that Cardbiz Holding Sdn Bhd has become a subsidiary of MyEG.

A few months earlier, MyEG announced that it was entering the card payment and terminal business by acquiring Cardbiz. This appeared to be a move to lessen its reliance on government contracts and go into the commercial side of business.

In fact, so positive was MyEG over its new commercial endeavour, that in a previous interview, managing director T.S. Wong told StarBizWeek the company would consider listing this division as a separate entity over the next few years.

“We will never enter a particular market space if we don’t believe that we can disrupt the existing model, more so for a mature segment like credit and debit card terminals,” Wong had said back then.

Cardbiz is an investment holding company with five key subsidiaries namely CardBiz Solutions Sdn Bhd, CardBiz Payment Services Sdn Bhd, CardBiz Technologies Sdn Bhd, Buy Now Asia Sdn Bhd and Cardbiz Payment Services Pte Ltd.

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Business , MYEG , PE , foreign worker , payment


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