MyEG Services Bhd ( Valuation: 1.10, Fundamental: 2.30)
(Jan 6, RM2.17)
Maintain add with a target price (TP) of RM2.83: MyEG Services Bhd’s (MyEG) proposed 1:1 bonus issue ex-date was on Tuesday. Its issued share base rises from 1.2 billion shares to 2.4 billion shares.
Although the bonus issue is fundamentally neutral, investors in the domestic market view the bonus issue positively. A larger issued share base should help boost the stock’s trading liquidity and the lower share price ex-bonus would make the stock more affordable to retail investors.
MyEG’s foreign workers’ permit renewal services (FWPR) will be its largest revenue contributor in financial year 2016 (FY16), according to management.
In May 2015, the government appointed MyEG to handle nationwide FWPR services and also to develop and maintain a database of foreign workers in the country. There are 2.5 million legal foreign workers and likely around five million illegal workers in the country.
MyEG charges a RM35 processing fee and another RM65 in commission from selling compulsory foreign workers’ insurance.
In September 2015, the Immigration Department also appointed MyEG to undertake the registration of illegal foreign workers in the country.
Pre-registration has started, and we believe registration should start soon for the illegal workers. We assume MyEG would register one million illegals in FY16, which is conservative, in our view, as we believe there are around five million illegal foreign workers in the country.
If the company could register two million illegal foreign workers, this could boost FY16/FY17 earnings per share by 18% to 22%.
We maintain our “add” recommendation on the stock and TP is unchanged at RM2.83 ex-bonus. Potential catalysts include a stronger-than-expected revenue from FWPR services and the successful launch of the custom service tax monitoring project in mid-2016. — CIMB Research, Jan 5
http://www.theedgemarkets.com/my/article/myeg-sees-higher-revenue-fwpr-services-fy16
