My E.G. - BUY - 29 Aug 2008

My E.G. Services - FY08 net profit within expectations (Results Note)



Price: RM0.895

Target Price: RM1.50

Recommendation: BUY



· FY08 net profit of RM14.8m was within expectations being only 8% lower than our full year forecast of RM16.2. We had forecasted faster acceptance of the road tax renewal service which was delayed due to the March 2008 elections. Otherwise the performance of MYEG is as expected with spot-on execution with a sustainable and profitable concession.

· YoY, FY08 net profit was 109.3% higher with strong EBITDA margin of 35.3% compared to 33.4% in FY07. The ability to both grow revenue and margin is largely due to the ability to leverage on a single distribution channel to introduce new services like driver's license renewal (introduced in April 2007) and road tax renewal/car insurance (introduced in April 2008).

· QoQ, 4Q08 net profit was -1.4% lower despite 4.2% higher revenue resulting from higher marketing expenses for the new product launched in April 2008. This was compensated by higher learner license applications and driver's license theory test in 4Q08 where 3Q08 was seasonally slowest period.

· YoY, 4Q08 net profit was 109.3% higher on 93.4% higher revenue. Earnings growth in 4Q08 due to full consolidation of MYSPEED which was acquired in 1Q08. In addition, maturity of renewal of drivers' license service after one year of introduction in addition to road tax renewal/car insurance also resulted in higher revenue and better economies of scale.

· Maintaining FY09E and FY10E net profit forecast of RM25m and RM30m. The growth in earnings is driven by higher acceptance of existing services and introduction of new ones like electronic application of vehicle registration numbers and transferring of motor vehicle ownership in 2009 and tax monitoring services and e-service for department of statistic.

· Maintain BUY and target price of RM1.50 using FY09E PER of 15x (a 2x premium over consumer sector PER of 13x) and FYJune09E EPS of 9.9sen. The stock remains attractive, trading at 9.0x and 7.5x FY09E and FY10E PER respectively. Net cash per share was 2.2 sen per share.