KEY INVESTMENT HIGHLIGHTS

• Maintain BUY with a revised target price of RM1.14 post the announcement of the 3QFY24 financial results
• 3QFY24 normalised earnings jumped +42.0%yoy to RM170.2m, mainly supported by the contribution from Zetrix
• This led to 9MFY24 of RM491.6m (+46.9%yoy) which came in above ours and consensus expectations
• The e-government services to continue to provide a stable earnings base for the group while earnings growth will stem from Zetrix

Double digit earnings growth. We are keeping our BUY recommendation on MYEG with a revised target price of RM1.14 (previously RM1.38) post the 3QFY24 results announcement. As expected, the roll out of more services using the Zetrix blockchain platform and higher sales of Zetrix tokens continue to support the group's revenue growth. Meanwhile, the existing e-government services serve as a good earnings base for the group. At the current rate, we view that there is a high chance that earnings from Zetrix would take over the aggregate income from the provision of e-government services. Nevertheless, we are cognizant that dependency on the Government would serve as an inherent policy risk to the group.

FV gain on investment boost the reported earnings. Myeg's 3QFY24 normalised earnings grew strongly by +42.0%yoy to RM170.2m.

Note that this excludes the fair value gain on investment of HeiTech Padu Bhd of approximately RM25m. The higher normalised earnings were mainly driven by the stronger growth in revenue as well as expansion in profit margin to 86.2%.

The improvement in revenue to RM248.1m (+27.8%yoy) was mainly supported by the contribution from web3 application service fees on the Zetrix blockchain platform such as ZTrade, ZCert and Digital ID registration and transaction as well as contribution from the sale of Zetrix tokens.

Above expectation. On a cumulative basis, 9MFY24 earnings amounted to RM491.6m, an improvement of +46.9%yoy. This was mainly due to a more favourable revenue mix as revenue derived from Zetrix blockchain of more than 30% of the total revenue. All in, Myeg's 9MFY24 financial performance came in above ours and consensus earnings estimates, making up 84% and 80% of full year FY24 forecasts respectively.

Upward revision in earnings estimates. We adjust FY24 to FY26 earnings between +7.1% and +13.4% as we factor in higher contribution from Zetrix which also command better profit margin.

More palatable target price. Despite higher earnings estimates, our target price has been adjusted to RM1.14 from RM1.38 previously. Note that we reduce our target PER to 11.7x, which is the two-year mean, from 15.5x previously. While Zetrix is currently the group's main engine of growth, the offering of Ztrade services shows that it is still, to a certain extent, dependent on the Government. Also, the existing offering of e-government services represents an inherent policy risk to the group.

Source: MIDF Research - 21 Nov 2024