MY EG SERVICES BHD

By MIDF Research Neutral (Maintain) Target price: RM2.10

MYEG has acquired a 23.5% stake in Stampede Holdings Sdn Bhd for a total consideration of RM10.4mil.

Stampede is a provider of a debt collection system called “Volare”, that automates and standardises key collection process.

It also owned Telefonix Sdn Bhd, a Voice over Internet Protocol (VoIP) telecommunication service provider.

Volare is designed to automate and assist in bulk processing of debtor cases and to monitor each case transaction in a collection process.

It is deployed in over 90% of leading professional debt collection agencies and corporations such as Bank Islam Malaysia Bhd, Perbadanan Usahawan Nasional Bhd, Toyota Capital Malaysia, Universiti Putra Malaysia, and

RCE Capital Bhd.

The investment will allow Stampede to strengthen its presence in maturing markets such as Philippines, Thailand, and Vietnam whilst exploring a potential venture into Indonesia, an emerging enterprise software market.

According to the management of Stampede, the global debt collection software market is expected to grow at compound annual growth rate (CAGR) of 5.85% from 2017 to 2021, and the AsiaPacific market continues to be promising as organisations seek alternative solutions in the accounts receivables market.

MYEG’s cash reserve stands RM180.5mil as at Sept 30, 2017.

After taking short term borrowings of RM21.9mil into consideration, the group still has cash balance amounting to RM158.6mil.

Thus, MYEG would not have any issue funding the acquisition via internally generated funds.

“MYEG is only acquiring an associate stake in Stampede.

“Thus, we do not expect the earnings contribution from Stampede to significantly impact the earnings of MYEG in the near term.

“We are of the view that the bulk of MYEG’s earnings would still come from its traditional core businesses.

“As such, we are maintaining our earnings estimates at this juncture,” said MIDF Research.

MYEG has an attractive business model which reap a healthy profit margin of more than 50%, which will also be further supported by the foreign worker hostel accommodation business.

While MYEG has been actively investing in various technology businesses such as Agmo Studios, FashionValet and Hurr.tv, the research house does not expect the earnings contribution from such investments to be meaningful in the near term.

On another note, the dividend yield is expected to remain unattractive at 1%.