The worst is not over for MyEG’s shares

The e-govt services provider will see its contract terminated by the end of the month


The termination of MyEG Services Bhd’s contract to manage the rehiring of illegal foreign workers in Malaysia and the government’s plan to have open tender exercises have dragged its share price to a three-year low.

The e-government services provider will see its contract with the Immigration Department — to carry out the rehiring exercise of undocumented foreign workers — being terminated by the end of the month.

The news saw its share price falling 20.3%, or 17.5 sen, to close at 68.5 sen with 219 million shares traded, making the counter the most actively traded yesterday.

MyEG clarified in a Bursa Malaysia filing yesterday that there was no ad hoc termination of the project as new registration under the project had ceased since Dec 31, 2017, in accordance with the Home Ministry’s letter dated Jan 23, 2017, which it had previously announced.

The company said the June 30, 2018, closing date as stated in the recent news articles “is the grace period to allow all remaining registrants to complete all pending procedures under the project”.

According to Bloomberg data, MyEG’s share prices have fallen as much as 74% since the beginning of May and a whopping RM6.83 billion was wiped off its market capitalisation over the period.

Analysts have lowered their consensus earnings estimate for MyEG in the second quarter to 6.7 cents per share from 7.4 cents per share.

MyEG sales estimates have also been reduced to RM470.7 million from RM516.7 million in the past four weeks.

MyEG trades at 10.9 times trailing 12-month earnings per share (EPS) and 10 times its estimates for the coming year.

MIDF Amanah Investment Bank Bhd in a research report yesterday revised its target price for the counter to 81 sen from RM2.47.

“This is premised on a financial year 2019 (FY19) EPS of 3.8 sen per share pegged to FY19 forward price-earnings ratio of 21.3 times (previously 26.3 times).

MIDF believes MyEG has an attractive business model which reaps healthy profit margins of more than 50%.

“Moving forward, we expect the group’s profit margin to be adversely impacted by the government’s implementation of open tender exercise as a policy to improve corporate governance and minimise costs.

“In addition, with the abolishment of the Goods and Services Tax, we view the group will lose its key earnings growth catalyst,” MIDF said.

MIDF added that both the Employees Provident Fund and the Retirement Fund Inc have since ceased to be its substantial shareholders.

“Dividend yield is also expected to remain unattractive at less than 1%,” it said.

BIMB Securities Research in a note reiterated its ‘Buy’ call, believing the stock has been oversold.

“Based on our assumptions of lower service fees, it continues to command robust return on investments of over 30%.

“We believe its strong presence in e-government services is crucial to stave off competition and retain its dominance in the space,” it added.

BIMB believes MyEG’s outlook remains strong, but expects new players to appear in the market.

“MyEG’s share prices have taken a significant beating post the 14th General Election due to concerns over huge exposure to government-related businesses and presence of board members closely tied to the previous administration.

“We expect existing concessions to be tendered out for new entrants and service rates to be reduced with the new administration setting a prudent policy undertone,” it said.

BIMB feels that MyEG’s strong e-government services track record and branding, especially in foreign worker related programmes, would see it retaining its dominance.

MyEG’s share price has decreased as much as RM1.90 over the 27 days from RM2.58 on May 8.

The company has embarked on a share buy-back exercise, buying some 38 million over the past three trading weeks.

The company last week said its indirect subsidiary, MYEG Auto Assist Sdn Bhd, has teamed up with AIG Malaysia Insurance Bhd to provide road care assistance to AIG’s policyholders over a two-year service agreement.