MY EG Services Berhad

Transcription

1 2Q FY June 2012 results MY EG Services Berhad 1 March 2012 JPJ-related services continue to drive growth Vehicle ownership transfer service launched Customs tax monitoring pilot trial completed Maintain Buy for growth prospects, potential wildcards Price RM0.68 BUY Market capitalization RM409 million Board Main Sector Trading & Services Key stock statistics FYJun11 FYJun12E EPS (sen) P/E (x) DPS (sen) Book value /share (RM) Issued capital (mil) (10 sen par) 52-week price range (RM) Major shareholders (%) Asia Internet Holdings 34.8% Lembaga Tabung Haji 5.0% Share Price Chart Stock code By The Research Team - 3-Jan-11 1-Mar-12

2 1H June 2012 results highlights Year end June (RM mil) 1HFY12 1HFY11 % chg Turnover Pre-tax profit Tax (0.05) (0.07) (28.6) Minority interests Net profit EPS (sen) Pre-tax profit margin (%) Net profit margin (%) MyEG Services, Malaysia s dominant e-services player, released results for 2Q FY June 2012 that were within expectations. Net profit of RM12.1 million for the first half of FY12 accounted for 44% of our full year forecast of RM27.8 million. Revenue for the quarter rose 26.8% year-on-year to RM16.9 million, driven by higher volumes for its motor insurance, road tax renewal, insolvency search services, as well as new cloud computing based services. Net profit for the quarter rose 15.3% to RM6.7 million from RM5.8 million a year ago. The company continues to enjoy largely tax-free status with minimal taxes paid. For the first half of FY12, revenue increased 22.7% to RM31.1 million, while net profit rose 40.2% to RM12.1 million. The disproportionately stronger growth in profitability versus revenue for the period compared with a year ago was due to lower marketing expenses and better economies of scale. In 1QFY2011, MyEG had incurred substantially higher costs relating to the 2010 World Cup advertising campaign and aggressive branding exercises. It is now realizing the benefits of the branding exercise as customer acceptance, awareness and visibility of MyEG s services have grown. Despite investments in new branches, kiosks and the customs monitoring service, the company s balance sheet remained strong. As at end-dec 2011, it had net cash of RM8.7 million, up from RM1.7 million in Sept 30, This excludes some RM2.7 million in hire purchase liabilities. 2

3 Outlook and recommendation We maintain our BUY recommendation and earnings forecast. We continue to like MyEG s business model, defensive qualities and ample scope for earnings growth through new business opportunities and services. After a sluggish year in FY11 where earnings growth slowed to 4.7% due to heavy investments in branding, kiosks and services, MyEG is set to resume its double-digit earnings growth momentum. For FY12, we expect net profit to rise 26% to RM27.8 million, assuming no contribution from the customs tax service. Assuming contributions of RM5 from this service in FY13, we expect net profit to rise 37.3% to RM38.1 million, with EPS of 4.6 sen and 6.3 sen, respectively. At 68 sen, MyEG is are trading at P/E multiples of 14.7 and 10.7 times for FY12-13, which we see as inexpensive relative to its double-digit strong growth and potential wildcards from the customs tax monitoring service, immigration and other new services. The company s earnings are poised to grow rapidly in the next few years, driven by continued growth for its road tax renewal service, new products and services, as well as increasing market share and customer acceptance. The underlying market for MyEG s range of services is large, with relatively resilient and recurring demand, supported by the growing popularity of online services and transactions for convenience and cost reasons. JPJ-related services MyEG s near term earnings will continue to be driven by its JPJ (Road Transport Dept) related services, namely for road tax renewal and insurance premiums. These are supported by a large number of vehicles and drivers and high transactional frequency. The road tax renewal services continue to see strong growth, and have yet to see saturation point. We understand the service currently attracts some 9,000 renewals per day, up from 8,000 late last year. Last year, it saw a steady increase in renewals, from around 5,000 per day in 1Q2011 to 6,000 per day in 2Q2011 to 8,000 daily by the end of Management estimates its current market share at 35-40%. Meanwhile, the motor insurance service continues to grow, and currently attracts about premiums underwritten daily. The company has just launched the first phase of its online Vehicle Ownership Transfer service, which allows for easier transfer of ownership. 3

4 Launched in Dec 2011, E-Tukar Hakmilik Sementara aims to solve issues, especially relating to assumption of liabilities and summons, concerning the transfer of ownership during the time when the vehicle is sold to a used-car dealer. Under existing laws, until the vehicle is sold to the eventual buyer, the ownership is technically registered with the original seller. For a fee of RM10, the new service allows car sellers to transfer their ownership to car dealers on a temporary basis for six months. We understand the potential market is around one million transfers annually. Immigration services The immigration services will be another major driver of growth going forward, although the division is seeing slow business for the moment due to labour and immigration issues in the country. Launched since April 2010, this involves the online renewal of foreign workers permits. At present, the service caters for domestic maids, but will be extended to cover other foreign workers at a later stage. Growth of the services has been hampered by the freeze in Indonesian and Cambodian maids, and the government s ongoing registration exercise of illegal workers. The foreign worker renewal service will be marketed more aggressively once the registration of illegal workers exercise is concluded. By then, there will be an estimated market size of around 4 million permits per year. Customs monitoring service Under the customs tax monitoring scheme, MyEG has a 40% stake in a special purpose vehicle (SPV) that will link up point-of-sales (POS) terminals of businesses that are subject to customs service taxes, such as restaurants and entertainment outlets. The SPV will undertake the program and install a software at each POS terminal for the link up at its cost. In return, the SPV will receive a 20% share of the taxes that were previously found to be under-declared, with 80% going to the government, with a base growth imputed. This could boost earnings from FY June 2013 onwards, although capex is also high at RM100 million for Phase 1. However, the quantum is difficult to assess at this juncture, as much depends on how much tax was underdeclared in the first place. We have not assumed any profit from this venture in FY12, with contribution to MyEG of RM5 million in FY13. 4

5 The potential market is large. We understand the service tax base was about RM4 billion in 2010, of which about RM2 billion are for category C and D businesses, namely restaurants and entertainment outlets. The remaining RM2 billion is from professional services as well as gaming. MyEG will initially focus on category C&D businesses, and has completed its pilot project. We understand the results of the pilot project have been submitted to the government, for the latter s decision before other phases can commence. It is worth noting that MyEG s customs tax monitoring service is compatible with a GST regime that is widely expected to be implemented at a later stage. This will give the company a potentially wider earnings base, if it is given the rights to administer the system. Profit & Loss Analysis Year end June (RM mil) E 2013E Turnover Operating profit Depreciation (5.2) (7.2) (7.5) (8.0) Interest income/(exp) (0.4) (0.5) (0.1) 0.3 Associates 5.0 Pre-tax profit Tax (0.2) (0.8) (0.2) (0.2) Minority interests 0.0 (0.1) (0.1) (0.1) Net profit Operating margin (%) Pre-tax margin (%) Net margin (%) Effective tax rate (%)

6 Per Share Data Year end June E 2013E EPS (sen) P/E (x) Dividend (sen) Net yield (%) Payout ratio (%) NTA (RM) Price/ NTA (x) Cashflow/share (sen) Price/Cashflow (x) Gearing (%) net cash 5.2 Net cash net cash ROE (%)