This article first appeared in Capital, The Edge Malaysia Weekly on July 17, 2023 - July 23, 2023

Target price: RM1.14 BUY

MAYBANK INVESTMENT BANK RESEARCH (JULY 10): Notwithstanding the threat posed by the future implementation of the National Integrated Immigration System (NIISe), circa 2H25, the extension of MyEG’s immigration concession effectively renders near-term policy risks or uncertainty benign. Pegged to a valuation multiple of 20 times FY24 PER (at the five-year mean), our target price is now also revised higher by 11% from RM1.03. Our “buy” rating is maintained based on improved risk-reward.

On July 7, MyEG announced it had received a formal notification from the Ministry of Home Affairs stating that the Ministry of Finance had affirmed the extension of its immigration-related concession. Recall that in February, the Immigration director-general (DG) issued a statement implying that MyEG’s immigration concession would not be renewed owing to the development of the NIISe, which subsequently caused MyEG’s share price to retrace about 37% in five days.

Although not explicitly stated, we gather from MyEG’s management that the extension is for a period of three years through to July 2026. Management had also alluded to an expansion of its previous concession scope to include foreign worker identity verification and the delivery of i-Kads at a presumptive charge of RM22 per worker. This expanded scope of service will apply to both walk-in renewals at the Immigration Department (circa 100,000 to 200,000 per year) as well as new foreign worker permit applications (circa 500,000 to 600,000 per year). Moving forward, the fees from this new service will serve as ancillary income to complement the existing concession business of foreign worker permit renewals.

The expanded e-service scope for the immigration concession is estimated to entail an additional top-line contribution of about RM7.2 million for FY23 and RM14.3 million for FY24/25. Imputing this, alongside a normalisation of permit renewal-related revenue for FY25 (previously revised downwards in February following the DG’s comments), we have nudged MyEG’s earnings forecasts for FY23/24/25 higher by 1%/2%/5%. In light of limited near-term policy risks vis-à-vis its immigration business, we also revert our valuation methodology back to PER (from the current sum-of-the-parts that values the immigration concession business separately using discounted cash flow with an 8% discount rate).

Target price: RM1.50 BUY

MIDF RESEARCH (JULY 11): Syarikat SESCO Bhd, the utility arm of Sarawak Energy Bhd, has terminated electricity supply to Cahya Mata Phosphates Industries Sdn Bhd (CMPI) at its plant in Samalaju. CMPI filed a Notice of Motion in the Court of Appeal for a preservation order to seek status quo on the electricity supply, which was not granted, which led to the power cut yesterday afternoon.

We expect this to have a limited impact on CMS’ financials as the phosphate subsidiary has yet to commence commercial operations. It is still in the process of obtaining the necessary approvals and licences to begin selling. It has about 10,000 drums of phosphorus in its inventory. There may be a delay in the commercialisation of CMPI’s plant in Samalaju due to the arbitration of the dispute, which may take up to two years.

We are making no changes to our forecasts for now as we await further clarity from management. CMS recognised a contingent liability of RM266 million in its FY22 financial statements, arising from its power purchase agreement dispute with SESCO.

Target price: RM1.02 BUY

UOB KAY HIAN RESEARCH (JULY 10): Eco World Development Bhd (ECW) plans to use its share of the capital distribution (RM243 million) for landbanking activities in the Klang Valley and Johor, focusing on growth and expansion. Nevertheless, we still expect higher dividends in the future as the company strives to further improve its total dividend payout over time while expanding its business in the coming years.

To recap, Eco World International Bhd (ECWI), a 27%-owned associate of ECW, received approval for its proposed capital reduction on June 23, paving the way for a special distribution of RM900 million, or 37.5 sen per share, to be paid by the end of 2023. ECWI achieved a net cash position of RM173 million (7.2 sen per share) by end-FY22, earlier than expected. The special distribution will be sourced from ECWI’s FY23 sales target of RM1.4 billion, primarily from sales of existing inventory.

We believe this special distribution aims to maintain the appeal of ECWI’s stock and promote shareholder loyalty, considering the challenging operating environment in its key London market. It has a substantial inventory and unlaunched projects with a gross development value of about RM9 billion, including RM1.8 billion in unsold completed inventory and six unlaunched projects.

Target price: RM1.71 NEUTRAL

RHB RESEARCH (JULY 10): Pipeline launches are going as planned and UOA’s new F&B business should complement its property projects. We expect its investment properties to drive earnings slightly in the coming quarters, premised on higher occupancy rates. While its net cash is still solid at RM2.2 billion, catalysts are lacking, especially in view of the current market risk arising from the upcoming state elections. Our new target price (lowered from RM1.86) is now based on a 45% discount to RNAV (from 40%), with a 2% ESG discount applied.

UOA recently announced its involvement in some new F&B businesses via a 51%-owned subsidiary that operates Botanica Co Restaurant and Potager. We understand that this F&B business is already profitable, but management has no plans to aggressively expand this new venture. The F&B business is mainly to complement existing and upcoming projects (such as Bamboo Hills) in order to create awareness and boost catchment. Currently, there are two Botanica Co restaurants, and the first Potager will be opened later this year at Bamboo Hills.

The maiden launch of Bamboo Hill Residence in Jalan Ipoh, Kuala Lumpur, will be in 4Q23.

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