by winston » Mon Dec 08, 2014 11:14 am
not vested
More upside for MyEG after CSTM contract
KUALA LUMPUR: CIMB Equities Research is maintaining its RM5.28 target price for My EG Services after it finally received government approval for the Customs service tax monitoring project (CSTM) project.
“We believe this is crucial for the company as the project is expected to be its main earnings growth driver over the next few years. We maintain our EPS forecasts and Add recommendation,” the research house said on Monday.
CIMB Research said its target price was based on an unchanged CY16 21 times price-to-earnings (P/E), which is in line with its peers.
“The project and further developments on the road safety diagnostic system project are potential rerating catalysts for the stock,” it said.
Last Friday, MyEG announced that it has finally secured the letter of award (LOA) from the Customs Department to undertake the CSTM.
“The CSTM project should start full commercial service within one month, in-line with our earlier forecast that CSTM starts full commercial service by January 2015.
“Although this approval announcement was not a complete surprise, it was nevertheless a relief that the LOA has finally been received after such a long delay,” it said.
CIMB Research said its earnings forecasts from the CSTM are conservative.
“We are looking at 60,000 outlets in FY2015 (Phase 1), 100,000 outlets in FY2016 (Phase 1) and rising to 200,000 outlets in FY2017 (Phase 1 and part of Phase 2). We have only assumed a conservative additional 100,000 outlets from CSTM phase 2 (retail sector) in FY2017.
“If CTSM phase 2 takes off faster than expected, FY2016/2017 net profit could be much higher than expected. MyEG targets a total 500,000 outlets under CSTM Phase 2 (retail sector),” it said.
CIMB Research said with the final CSTM approval in hand, MyEG’s share price should see an upward rerating over the next few weeks. Its proposed road safety diagnostic system (RSDS) project could also positively surprise in 2015.
To recap, in July 2014, the authorities made it mandatory for all commercial buses to install a road safety diagnostic kit (RSK) over the next 12 months.
“If MyEG can capture 25%-30% market of both the commercial bus and lorry industry insurance premiums, it could collect around RM58mil to RM75mil insurance commission annually. Assuming a 40% net profit margin, RSDS could contribute RM23mil-RM30mil net profit annually to MyEG’s bottom line. We have not assumed any potential earnings from RSD,” it said.
Source: The Star
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