MYEG (0138): MY E.G. Services - Government to absorb MyEG’s FWPR fee?
Target RM3.54 (Stock Rating: ADD)
At the Invest Malaysia Conference 2015 meetings, we were disappointed by MyEG's further delays in the launch of the CSTM project. We cut our EPS forecasts by 1-19% to reflect delays in the CSTM's launch and lower FWPR fees to be paid by the government. Our target price, still based on 21x CY16 P/E (in line with its peers), falls as a result. The stock remains an Add. Potential re-rating catalysts include the closing of Immigration counters and successful launch of its CSTM project.
What Happened
MyEG participated in the Invest Malaysia Conference 2015 yesterday, where management met with 40 fund managers (in small group meetings). There was one negative surprise that cropped up during the meetings: 1) The mandatory use of MyEG’s custom service tax monitoring (CSTM) has been postponed from end-Mar 2015 to end-Sep 2015. 1HFY16 earnings will mainly be affected. With the new Sep 2015 deadline, it will take MyEG 1-2 months to install CSTM dongles nationwide. We now assume that CSTM will only start in Jan 2016. Concerning the foreign workers permit renewal services (FWPR), the government is expected to absorb MyEG’s RM38 FWPR fee but the government had asked for some discount on the fee. MyEG has reduced the FWPR fee from RM38 to RM35 per transaction, representing a 9% decline.
What We Think
We are disappointed with MyEG’s CSTM launch delays. CSTM was supposed to start in Apr 2014 but management has been facing one delay after another. On the other hand, the current CSTM delay could be positive as management needs to focus on the FWPR issues and complaints. Although MyEG had to give a discount on the FWPR fee, the lower FWPR fee is a small price to pay. With the government paying for all FWPR transactions, employers now cannot complain about additional fees when renewing foreign workers permits.
What You Should Do
Remain invested in the stock. The company is currently facing some challenges but management remains focused on resolving the issues. If we are right, the government is expected to close the Immigration counters soon. This will resolve concerns over the FWPR services and allow management to focus on CSTM.
Source: CIMB Daybreak - 24 April 2015
Target RM3.54 (Stock Rating: ADD)
At the Invest Malaysia Conference 2015 meetings, we were disappointed by MyEG's further delays in the launch of the CSTM project. We cut our EPS forecasts by 1-19% to reflect delays in the CSTM's launch and lower FWPR fees to be paid by the government. Our target price, still based on 21x CY16 P/E (in line with its peers), falls as a result. The stock remains an Add. Potential re-rating catalysts include the closing of Immigration counters and successful launch of its CSTM project.
What Happened
MyEG participated in the Invest Malaysia Conference 2015 yesterday, where management met with 40 fund managers (in small group meetings). There was one negative surprise that cropped up during the meetings: 1) The mandatory use of MyEG’s custom service tax monitoring (CSTM) has been postponed from end-Mar 2015 to end-Sep 2015. 1HFY16 earnings will mainly be affected. With the new Sep 2015 deadline, it will take MyEG 1-2 months to install CSTM dongles nationwide. We now assume that CSTM will only start in Jan 2016. Concerning the foreign workers permit renewal services (FWPR), the government is expected to absorb MyEG’s RM38 FWPR fee but the government had asked for some discount on the fee. MyEG has reduced the FWPR fee from RM38 to RM35 per transaction, representing a 9% decline.
What We Think
We are disappointed with MyEG’s CSTM launch delays. CSTM was supposed to start in Apr 2014 but management has been facing one delay after another. On the other hand, the current CSTM delay could be positive as management needs to focus on the FWPR issues and complaints. Although MyEG had to give a discount on the FWPR fee, the lower FWPR fee is a small price to pay. With the government paying for all FWPR transactions, employers now cannot complain about additional fees when renewing foreign workers permits.
What You Should Do
Remain invested in the stock. The company is currently facing some challenges but management remains focused on resolving the issues. If we are right, the government is expected to close the Immigration counters soon. This will resolve concerns over the FWPR services and allow management to focus on CSTM.
Source: CIMB Daybreak - 24 April 2015
