CIMB Research lowers MyEG to Hold as most good news priced in

KUALA LUMPUR: CIMB Equities Research has downgraded My EG Services from Add to Hold while maintaining the target price of RM3.04. The last traded price was RM2.79.

It said MyEG’s share price has outperformed both the KLCI and the KLSE Technology Index so far this year. 

Year-to-date, the stock has risen more than 30% vs. KLCI’s 3%-4% gain and KLSE Technology Index’s 23.6% decline. 

“We believe the latter's sharp decline YTD was mainly due to the fact that most technology companies' export revenues are in US$ and the ringgit has been strengthening against the US$ over the past few months,” it said. 

CIMB Research said this was its first downgrade since it upgraded MyEG to an Add from Hold on April 24, 2014.

“We believe at current share price levels, most of the good news has already been reflected in its share price and we do not see any positive catalyst surprises over the next few months for the stock. 

“Upside risk is successful launch of GST Monitoring (GSTM) Phase 2 while downside risk is delay in GSTM Phase 2 launch,” it said.

CIMB Research said with the registration of illegal foreign workers (IFW) completed end last year, it expects MyEG’s earnings growth to be driven by the GSTM project over the next one to three years. 

Under the project, it gets RM1,000 per annum from the government for every outlet installed with its dongles (attached to cash registers). The goal of Phase 1 is to install dongles in 50,000 F&B outlets nationwide. 

“We understand it had made the installation in over 20,000 F&B outlets in Klang Valley; the rest to be done in 2H18,” it said.

GSTM Phase 2 should be a major cash cow for the company. GSTM Phase 2, which would involve the retail sector, would see an estimated 500,000 retail outlets linked to the GSTM project and MyEG would also receive RM1,000 per outlet annually. 

On full installation of Phase 2, MyEG gets RM500mil annually. Assuming 20%-25% profit before tax (PBT) margin, Phase 2 should contribute RM100mil to RM125mil PBT annually to the company. 

CIMB Research has assumed GSTM Phase 2 to start from mid-2018F.

In January, MyEG received the approval from Bank Negara to issue electronic money. When the GSTM Phases 1 and 2 are in place, the country’s retail and F&B sector would be fully  linked to the GSTM network. 

“We believe MyEG would be able to derive some synergy from linking its electronic money to retail and F&B outlets nationwide. 

“We have not assumed any potential earnings from the electronic money licence yet.    Maintain EPS and target price, based on 25.2 times 2019F P/E, a 20% premium to the technology sector. 

“The premium is to reflect its large market capitalisation and strong 36% CY18-20F EPS CAGR. However, there could be earnings disappointment for the company if there are any delays in the launch of GSTM Phase 2, targeted to start in mid-2018F,” it said.