Separating jittery sentiment and real impact. Recent news that the Immigration Department will take over all immigration services and processes by 2025, along with the announcement that road tax stickers for private vehicles are no longer mandatory, has triggered a major slide in MYEG's share price. The knee-jerk reaction (-23% from YTD high of RM0.95 to RM0.73 yesterday) is mainly due to concerns about potential revenue loss for MYEG, especially for its immigration segment as the immigration services and processes will be migrated to the new National Integrated Immigration System (NIISe). However, it is worth noting that the earnings void from this event may only account for c.RM70-80m (c.10% of MYEG's FY21 revenue) as bulk of MYEG's revenue from the immigration segment comes from commercial aspects of the business, such as cross-selling insurance products and recruiting foreign workers for employers, which the NIISe is not providing.

Earnings prospect remains intact. In the near term, MYEG is well-positioned for robust growth in the next 2-3 years, buoyed by the tremendous earnings potential from Zetrix and continued high demand for Malaysian e-government services. To recap, MYEG will monetize Zetrix via an initial coin offering (ICO) and by offering blockchainbased services. Zetrix platform will provide various applications such as blockchainbased identifiers and e-signing services, and the token issued during the ICO will serve as a gas fee for accessing these services. Should Zetrix's China-Asean trades gain traction, it will significantly bolster MYEG's earnings, with a projected pre-tax contribution ranging from RM50-127m for this segment in 2023-2025.

Additionally, MYEG's core immigration and road transport segments are expected to see continued high demand, as the former will be fueled by the prolonged labor shortage, while the latter is supported by the rollout of e-testing services and increased motorcycle road tax renewals. All in, market consensus is expecting MYEG’s FY22-25 core net profit to register a stable 3% CAGR.

Building a base. Following the bearish 31% gap down to RM0.65, MYEG is building a base near RM0.68-RM0.73 levels with volume declining – it indicates the selling momentum is diminishing. A successful breakout above RM0.74 will spur the price toward RM0.79-0.82-0.91. Cut lost at RM0.63.

Source: Hong Leong Investment Bank Research - 2 Mar 2023