My E.G. – Outperform with target price of RM2.30

Author: kltrader   |   Publish date: Fri, 17 Jun 2016, 10:31 AM 

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Macquarie Equities Research (MQ Research) reiterated its Outperform recommendation on My E.G. albeit lowering its target price (TP) to RM2.30, from RM2.60. In a report published last night, MQ Research discussed two events that will impact My E.G’s forecasted earnings per share (EPS)
Event

• MQ Research maintains an Outperform recommendation on My E.G. with a lower discounted cash flow (DCF) derived target price of RM2.30. While MQ Research still expects a pick-up in registrations under the Illegal Foreign Worker Rehiring Program, the final number may come in around 300k, below MQ Research’s earlier expectations of 1m. Separately, MQ Research sees risk of deferment in the implementation of Good and Services Tax Electronic Monitoring System (GST EMS) program to late-2017 (from mid-2017). Notwithstanding these hiccups, MQ Research continues to like My E.G.’s robust business model and strong management team. Its FY15-18E earnings CAGR of 48% should more than justify its 24x CY17E PE.

Impact

• MQ Research expects 300k illegal foreign workers to register under the Government rehiring program,a 70% cut from MQ Research’s earlier expectations of 1m registrations in view of the lukewarm response thus far. Malaysia’s Deputy Prime Minister said that 124,279 foreign workers were registered under the rehiring program between 15th Feb and 13th June. MQ Research’s latest forecast of 300k registrations is equivalent to 18% of government estimated 1.7m undocumented foreign workers in Malaysia.

• Roll-out of GST EMS program may defer to end-2017, a delay from MQ Research’s earlier expectations of mid-2017, as the bill has yet to be tabled in the Parliament. While MQ Research is confident on an eventual roll-out of the program, it is difficult to forecast the announcement and implementation timeline. A one-year delay in the announcement to end-CY2018 will lower MQ Research’s FY18E earnings forecast by 3%.

• Notwithstanding these speed bumps, MQ Research continues to like My E.G. for its asset-light, high return of earnings (ROE) business model and growing business volume. MQ Research expects its online road transportation businesses to continue gaining popularity. This, together with higher market shares in commercial products (eg., car insurance, foreign workers insurance) and higher immigration earnings, should drive FY17E earnings growth by 30%.

Earnings and target price revision

• MQ Research cuts its FY16-18E earnings per share (EPS) forecast by 13%-20%, imputing: (i) fewer registrations of illegal workers under the rehiring program (300k, from 1m); (ii) one-year delay in the implementation of GST EMS program to end-2017; and (iii) lower market share of 10% in the foreign workers’ SIM card segment. MQ Research’s price target reduces to RM2.30 from RM2.60.

Price catalyst

• 12-month price target: RM2.30 based on a DCF methodology.

• Catalyst: Strong quarterly earnings, pick-up in registrations under the Rehiring Program or announcement of GST EMS program.

Action and recommendation

• Maintain Outperform.

Source: Macquarie Research - 17 Jun 2016