MYEG (0138) : MY E.G. Services - Finally secures LOA for CSTM
Target RM5.28 (Stock Rating: ADD)
After a long delay, MyEG has finally received government approval for the CSTM project. We believe this is crucial for the company as the project is expected to be its main earnings growth driver over the next few years. We maintain our EPS forecasts and Add recommendation. Our target price is based on an unchanged CY16 21x P/E (in line with its peers). The government’s final approval for the CSTM project and further developments on the road safety diagnostic system project are potential rerating catalysts for the stock.
What Happened
This evening, MyEG announced that it has finally secured the letter of award (LOA) from the Royal Malaysia Custom Department to undertake the customs service tax monitoring project (CSTM). The CSTM project should start full commercial service within one month, in-line with our earlier forecast that CSTM starts full commercial service by Jan 2015.
What We Think
Although this approval announcement was not a complete surprise, it was nevertheless a relief that the LOA has finally been received after such a long delay. Our earnings forecasts from the CSTM are conservative. We are looking at 60,000 outlets in FY2015 (Phase 1), 100,000 outlets in FY2016 (Phase 1) and rising to 200,000 outlets in FY2017 (Phase 1 and part of Phase 2). We have only assumed a conservative additional 100,000 outlets from CSTM phase 2 (retail sector) in FY2017. If CTSM phase 2 takes off faster than expected, FY2016/2017 net profit could be much higher than expected. MyEG targets a total 500,000 outlets under CSTM Phase 2 (retail sector).
What You Should Do
Remain invested in the stock. With the final CSTM approval in hand, MyEG’s share price should see an upward rerating over the next few weeks. Its proposed road safety diagnostic system (RSDS) project could also positively surprise in 2015. In Jul 2014, the authorities made it mandatory for all commercial buses to install a road safety diagnostic kit (RSK) over the next 12 months. If MyEG can capture 25-30% market of both the commercial bus and lorry industry insurance premiums, it could collect around RM58m-75m insurance commission annually. Assuming a 40% net profit margin, RSDS could contribute RM23m-30m net profit annually to MyEG’s bottom line. We have not assumed any potential earnings from RSDS.
Source: CIMB Daybreak - 08 December 2014
Target RM5.28 (Stock Rating: ADD)
After a long delay, MyEG has finally received government approval for the CSTM project. We believe this is crucial for the company as the project is expected to be its main earnings growth driver over the next few years. We maintain our EPS forecasts and Add recommendation. Our target price is based on an unchanged CY16 21x P/E (in line with its peers). The government’s final approval for the CSTM project and further developments on the road safety diagnostic system project are potential rerating catalysts for the stock.
What Happened
This evening, MyEG announced that it has finally secured the letter of award (LOA) from the Royal Malaysia Custom Department to undertake the customs service tax monitoring project (CSTM). The CSTM project should start full commercial service within one month, in-line with our earlier forecast that CSTM starts full commercial service by Jan 2015.
What We Think
Although this approval announcement was not a complete surprise, it was nevertheless a relief that the LOA has finally been received after such a long delay. Our earnings forecasts from the CSTM are conservative. We are looking at 60,000 outlets in FY2015 (Phase 1), 100,000 outlets in FY2016 (Phase 1) and rising to 200,000 outlets in FY2017 (Phase 1 and part of Phase 2). We have only assumed a conservative additional 100,000 outlets from CSTM phase 2 (retail sector) in FY2017. If CTSM phase 2 takes off faster than expected, FY2016/2017 net profit could be much higher than expected. MyEG targets a total 500,000 outlets under CSTM Phase 2 (retail sector).
What You Should Do
Remain invested in the stock. With the final CSTM approval in hand, MyEG’s share price should see an upward rerating over the next few weeks. Its proposed road safety diagnostic system (RSDS) project could also positively surprise in 2015. In Jul 2014, the authorities made it mandatory for all commercial buses to install a road safety diagnostic kit (RSK) over the next 12 months. If MyEG can capture 25-30% market of both the commercial bus and lorry industry insurance premiums, it could collect around RM58m-75m insurance commission annually. Assuming a 40% net profit margin, RSDS could contribute RM23m-30m net profit annually to MyEG’s bottom line. We have not assumed any potential earnings from RSDS.
Source: CIMB Daybreak - 08 December 2014
