MyEG Capital’s 10% stake in S5 may not generate earnings for 2022

The uncertainties include changes in political leadership, economic conditions and foreign investment policies 

by AZALEA AZUAR  / Pic credit: myeg.com.my 

MYEG Services Bhd’s wholly owned subsidiary, MyEG Capital Sdn Bhd, proposed purchase for an additional 10% stake on top of its 10% holdings in S5 Holdings Inc, may noy be able to generate sufficient returns. 

MIDF Research, in a report yesterday, stated the proposed acquisition to counterpoise the associated cost of investment given that any adverse development in the political, economic and regulatory environment in Malaysia may have a material adverse effect on the financial performance and prospects of S5. 

These uncertainties include changes in political leadership, economic conditions and foreign investment policies. 

“Therefore, we are neutral on the news, hence maintain our earnings estimates and target price of RM1.27 on MyEG. Our target price is premised on pegging the financial year 2022 (FY22) earnings per share of 6.1 sen against price-to earnings ratio (PER) of 20.9 times which represent +1.0 standard deviation to the company’s three-year historical average PER of 19.3 times,” the research outfit’s report noted adding it has a ‘Buy” call on MyEG. 

The MyEG unit is buying the stake from S5’s existing shareholder, S7 Holdings Sdn Bhd, and plans to leverage the relationship with S5 to gain greater synergies and mutual benefits and expand the company’s footprint in Malaysia, as well as solidify its position as an e-government services provider. 

The proposed acquisition will be funded through internally generated funds and is not expected to have any material effect on MyEG’s gearing for FY22, MIDF said. 

MIDF is positive on MyEG’s long-term business prospects owing to growing e-government transaction volume and expansion in concession-related business. 

“Apart from its online road transport services, we opine its health-tech services, blockchain initiatives as well as global presence and partnership may generate positive contributions to the group,” said the research firm.