Mar 11, 2016

MYEG : Just a small confusion

MY E.G. Services Stock Code : 0138

MYEG target price

■ MyEG’s share price has fallen 7% over the past three trading days.
■ We think this was likely due to confusion about processing of illegal foreign workers.
■ Is involved in processing of all illegal foreign workers, regardless of nationality.
■ Current share price weakness offers investors an opportunity to accumulate.

MYEG financial data

Share price has fallen 7% over past three days
MyEG’s share price is down 7% over the past three trading days. We believe that one of the reasons for the short-term selldown is confusion about the “front-end” and “backend” processing of illegal foreign workers (IFW). We understand there are five parties involved in the “front-end” processing of IFW: one for Indonesia, one for Myanmar and three for “other” foreign workers. MyEG is one of three parties allowed to register “other” foreign workers. Registration of an IFW will cost RM1,134.52, says MyEG.
MyEG will handle the registration process of all IFW
On its FAQ webpage (Figure 3), MyEG indicated that it will only accept “front-end”processing of IFWs from countries other than Indonesia and Myanmar. We think that investors misunderstood this statement. MyEG makes an average RM100 revenue for each IFW who registers under this rehiring programme, regardless of nationality.

Rehiring programme open for six months but…
In Feb, the Home Ministry secretary-general Datuk Seri Alwi Ibrahim announced that the rehiring programme would be carried out from 15 Feb to 15 Aug 2016. In the first week, we believe that the registration was slow but momentum has picked up over the past 1-2 weeks. This is because the Immigration Department has been conducting regular raids on construction sites, plantations and nightclubs. The IFWs arrested in these raids would be deported to their respective countries.

Employers cannot wait six months
As such, businesses are now looking to register the IFWs under their employment as they cannot afford to lose these workers. To make matters worse for employers, the Malaysian government has imposed a hiring freeze on new foreign workers, which means that new labour supply is capped for now. 

We assume that 1m illegals will be registered by Jun 2016
We understand there are 4m-5m IFWs in the country now. We have conservatively assumed that MyEG will register 1m IFWs by Jun 2016. If MyEG only registers 0.5m IFWs in FY16 and another 0.5m in FY17, our FY16 EPS falls by 12% but FY17 EPS rises by 11.6%, However, our MyEG target price is unchanged, based on 21x CY17 P/E (in line with the average of its peers). 

Maintain Add
We maintain our FY16-18 EPS and target price, based on an unchanged CY17 P/E of 21x (in line with the average of its peers). MyEG’s share price has fallen 7% over the past three trading days, providing investors with an opportunity to accumulate. Potential re-rating catalysts include higher-than-expected registration of illegal foreign workers.

Holding at support levels 
MyEG’s share price came under pressure during the past three trading days but the stock saw strong buying at its near-term support trend line of RM1.94. In our view, the selling climax occurred today, with daily trading volume of close to 30m shares.

MYEG chart analysis
source: CIMB Research  - 07/03/2016

The Company is principally engaged in the Electronic Government (E-Government) and Electronic Services (E-Services) industry. It operates in two business divisions: Government to Citizen (G2C) and Government/Enterprise Solution (GES). G2C services refers to services such as driving theory test bookings issuance and renewal of licenses electronic bill payment and payment as well as online information services such as traffic summons checking and electronic bankruptcy or liquidation status searches. GES are non-Internet-based services such as software and enterprise solutions system development and maintenance as well as services rendered at the E-Services Centers. These services are non-Internet-based and cannot be transacted by citizens independently.