Positive Developments Outweigh Earnings Forecast Rationalisation
We remain upbeat on MYEG’s prospects, which are anchored on the recovery of the
foreign worker segment, the road transport segment’s e-Testing’s launch, Zetrix’s
launching, and the potential to clinch new government contracts. However, we cut our
2022F PBT forecast by 16% to reflect lower volume assumptions for COVID-19 tests and
e-Testing due to respectively potential travel policy changes and commercialization
delays. Maintain BUY with a lower target price of RM1.30.
WHAT’S NEW
• MYEG still poised to deliver 16% earnings growth in 2022. As a key border reopening
beneficiary, My EG Services (MYEG) is expected to deliver 16% growth in 2022, driven
mainly by the immigration and road-transport segments. While we expect revenue from the
healthcare segment to significantly taper off by 2H22, the shortfall will be cushioned by the
earnings growth/recovery in MYEG’s e-government/immigration-related services.
• Easing of COVID-19 SOPs significantly reduced our healthcare segment’s earnings
forecast. As Malaysia is likely to soon follow suit the regional neighbors’ easing of border
crossing requirements (namely waiving the COVID-19-test mandate) for inoculated travelers,
MYEG’s COVID-19 testing and quarantine services revenues will eventually significantly
shrink. While MYEG should deliver strong interim earnings based on >5000/day COVID-19
tests, we reduced our 2022 COVID-19 tests volume assumption from 3m to 800,000 to
conservatively factor in the abolishment of COVID-19 testing requirements for the fullyvaccinated inbound travellers.
• Delay in JPJ’s e-Testing commercial roll-out. To recall, MYEG commenced the Proof of
Concept (POC) for the Automated Driving Test and Training System (e-Testing) in Nov
2021, which could deliver RM50-60m/year profits on commercial rollout However, we
understand that there were some technical delays to the rollout, and now assume that the
commercialisation will only materialise by July at the earliest, thus only contributing about
RM21m to our 2022 profit before tax (PBT) forecasts.
• Despite the delayed timing of emerging revenue streams, the stock should resonate
with the upcoming stream of positive newsflow. Positive newsflow includes the country’s
initiation of foreign workers recruitment (boosting MYEG’s immigration segment’s matching
and permit renewal services), Zetrix’s further launches of blockchain-related new
applications, and possibly clinching new government contracts.
STOCK IMPACT
• Multi-pronged catalysts amid economic reopening to ignite earnings recoveries
within the immigration and road transport segments. These include: a) strong recovery
in foreign worker matching services and eventually the foreign worker permit renewal
services, b) robust growth from motorcycle road tax renewal and car e-Testing (automated
driver license) services, and c) the listing of its various upstart investments locally and in
China. Longer term, we remain optimistic that MYEG will clinch more government contracts,
including the lucrative e-visa concession.
• Immigration segment’s recovery led by foreign workers’ entry approval. To recall, the
government has reopened the country’s border for foreign workers after a prolonged hiatus
due to COVID-19, and has forged bilateral agreements with some countries (Nepal and
Bangladesh) over worker recruitment levy. The Malaysian Employers Federation (MEF)
stated that about 475,678 employers had submitted applications to recruit foreign workers
but only about 2,600 applications were approved as of 1 April. Such unfulfilled demand will
be uplifting to MYEG’s matching services which contributed about 20-25% of pre-pandemic
revenue from 2Q22 onwards.
• Zetrix’s platform to gradually gain momentum from its April launch. Recall that MYEG
launched Zetrix blockchain via an exclusive three-year JV with Xinghuo’s core protocol
developer Bubi Technology (Bubi). We understand that Zetrix blockchain has completed the
foundational development for its Layer-1 blockchain functionalities and launched its mainnet
in mid-April, featuring MYEG’s non-fungible token (NFT) marketplace – NFT Pangolin as one
of the first applications. With supply chain management applications to be launched soon,
we expect MYEG to monetize Zetrix via charging gas fees on transactions, tracking fees on
the supply chain traceability, as well as transaction fees on cross-border trades.
• Reducing MYEG’s 2022 PBT projection due to COVID-19 breath tests. To recall, MYEG
had been impressively processing >5,000 COVID-19 tests/daily since the border reopened,
primarily on inbound travellers who have registered via the MySafeTravel portal, and had
targeted to implement its breath tests in airports. However, as Malaysia would likely follow
suit its neighboring countries’ initiatives to remove test requirements, we lower our 2022 test
volume to 600,000 from 3m. Our new earnings assumptions in RHS table.
• Reducing MYEG’s 2022 PBT projection from e-Testing. Recall that MYEG had
commenced the POC for e-Testing in two test circuits for car driver licence in Peninsular
Malaysia, for commercialisation in Apr 22. However, we understand that the
commercialisation timeline was again delayed to July at the earliest. Our new earnings
assumptions are provided in RHS table.
EARNINGS REVISION/RISK
• We reduced our 2022 net profit forecasts by 16% to factor in lower volume forecasts for
COVID-19 breath test and delay of e-Testing’s commercialisation.
VALUATION/RECOMMENDATION
• Maintain BUY with target price of RM1.30, which implies 25x 2022F PE and incorporates
MYEG’s various investment (Agmo Studios and S5 Systems).