It's definitely been an eventful year for MYEG. Eversince my pre-election bearish post on 7th May (http://bit.ly/2QJB7It, MYEG had tanked from RM 2.70 to below RM 0.70 (-75%) and recovered to current level of RM 1.80 in the space of 5 months. Lets try to break down what had transpired and see if the stock is now a buy / hold / sell. Original blog link here: http://bit.ly/2QLpoZR
- The fall:
In May, MYEG was sold off post election due to: 1) Perceived close relationship of the CEO with the top brass of previous government. This had led the company to have 2) concessionary businesses that was done at a very advantegous margin to the company. The company also 3) heavily invested in a platform that was contracted to file GST.
With the new government, there will be some changes with the way the company is run, presumably: 1) to invite other service providers to bid for government projects hence removing monopoly from MYEG and 2) government will ask for price discounts for existing projects.
- The revival:
In my opinion, the recent revival of MYEG is due to numerous business strategies that constitute further to the positive vibe around the stock, all of which also must be credited to CEO Wong Thean Soon & his team.
1) Financial Results remain healthy. Revenue still growing and margin STILL stable
2) Thus far, in my opinion,the government is too busy with trade relation with China, 1MDB, cancellation of mega projects and others - which has much bigger impact to the country's balance sheet to bother much with the amount of money they paid to MYEG 3) SST replacing GST to plug a hole in the balance sheet. The government so far had not mention that a change is imminent as first and utmost priority is to implement SST. MYEG had a system ready and probably its safe to assume for now that MYEG will still be the contractor for upcoming SST
4) Company is growing its non-concessionary businesses such as auto insurance, auto financing, online and offline vehicle trading, road safety diagnostic service, provision of hostel accommodations and insurance for foreign workers. Historically the concession based business accounted for around 80% of total revenue, but kudos to the management, its non-concession related businesses had slowly overtaken the prior.
5) E-Government services to other countries. Leveraging on their success in Malaysia, MYEG is venturing to offer similar services such as Phillipines, Bangladesh (start operation by year end) & potentially Indonesia (post election in 2019). I think as govn related services are pretty similar around the world, capex should be minimal from replication.
6) Remittance business. On Aug 6th, MYEG announced that it will roll out e-remittance service for migrant workers in 3Q 2018 that aims to avoid middle men hence process is transparent & cost efficient. Having been an FX trader previously, and knowing some friends in the remittance business, I can tell you that this is a lucrative business to be into. Malaysia as a country has ALOT of foreign workers and FX transactions value are in billions.
- Buy Hold or Sell:
MYEG had went up 35% in the past 1 month & 15% in 1 week. No one really knows the reason but perhaps it could be due to some impending announcement on the remittance business?? In any case, currently MYEG is valued at 28x FY 18 PE ratio. Historically past 5 years the company average PE was at 45x.
I think that a PE of 25-30x based on FY 18 should be used to determine fair value of MYEG. Reason is 1) At this current juncture, it's hard to predict future earning potential for MYEG alot of things such as margin & earnings from new projects are quite uncertain 2) PE 30x is 2/3 of historica average PE 3) Biggest negative is already priced in 4) The company shows initiative to grow & move away from past concession businesses from comprehensive expansionary plan 5) Relatively low gearing level 6) Still have first mover advantage. Target Price RM 1.60 - 1.90
MYEG is a hold now but overall still offers an attractive investment opportunity at lower prices. I might change my stance once earnings visibility become clearer & looking forward to remittance business agenda.