Post-Covid-19 earnings growth still healthy
? 1Q22 results were in line at 23%/24% of our/consensus FY22F NP forecasts.
? We see new services, such as RTD E-Testing, and recovery in job matching
services for migrant workers driving MyEG’s FY22F net profit growth.
? Reiterate Add, with an unchanged RM1.20 TP, still based on 23x CY22F P/E.
1Q22 net profit grew 11% yoy
My E.G. Services’s (MyEG) 1Q22 revenue fell 6% yoy, mainly due to changes in business
model for its MySafeTravel (MST) service. The group had previously purchased rooms
upfront from quarantine hotels for private quarantine arrangements, which resulted in
higher revenue and cost of sales in 1Q21; it has since changed the service into a
reservation arrangement with a referral fee for every private quarantine arrangement,
leading to a decrease in operating expenses. Hence, MyEG’s EBITDA margin expanded
by 9.4% pts yoy to 62%, despite the lower revenue registered in 1Q22. Overall, its 1Q22
net profit grew 11% yoy to RM84.6m, making up 23% of our FY22F PAT.
Setting its sights on stronger job matching service recovery
MyEG’s job matching service has been affected by the border closures since 2020.
However, we expect the reopening of Malaysia’s international borders from 1 Apr 2022 to
positively impact the group’s job matching service; it has resumed processing applications
for the service since Apr 22. The Federation of Malaysian Manufacturers estimates that
the domestic industrial sector will require more than 600k migrant workers in 2022F to drive
the nation’s economic recovery and bring businesses back to pre-pandemic levels.
Management also revealed that MyEG has a healthy pipeline of over 50k applications for
its job matching service. Overall, the group believes that immigration-related services, like
job matching, permit and insurance renewal for foreign workers, could be a major revenue
growth driver for FY22F.
Multiple new services to drive growth in FY22F
MyEG is still conducting the pilot run for the Automated Training and Driving Test System
(E-Testing) for the Road Transport Department. There have been delays in the E-Testing
rollout; the group now expects to complete the pilot run and certification by end-2Q22F and
begin rollout by 3Q22F. E-Testing is a new revenue driver for MyEG, with potential revenue
of up to RM150m per year, based on RM150 average revenue per applicant.
Reiterate Add and an unchanged RM1.20 TP
The stock has fallen 16% YTD, partly due to concerns over earnings impact on its health
tech initiatives following a reduction in quarantine service demand and sluggish tech sector
sentiments amid a rising interest rate environment. Nevertheless, we still like MyEG as a
proxy for new digitisation initiatives by the government, like E-Testing, and given recovery
in its job matching service with borders reopening. Hence, we keep our Add rating on the
stock and RM1.20 TP, still based on 23x CY23F P/E, in line with MyEG’s 5-year mean P/E.