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Wednesday, March 26, 2014

CIMB Research retains MyEG's target price at RM3.05

Published: Wednesday March 26, 2014 MYT 10:32:00 AM 
Updated: Wednesday March 26, 2014 MYT 10:35:38 AM

KUALA LUMPUR: CIMB Equities Research is maintaining MyEG Services target price at RM3.05 and its Hold call as most of the positive news flow is already in the share price.

It said on Wednesday MyEG's Customs Service Tax Monitoring system (CSTM) project was expected to start nationwide from April 2014 onwards.

Phase 1 of this project involves linking up around 20,000 point-of-sales (POS) terminals at restaurants and entertainment outlets across the whole country to monitor service tax transactions electronically.

"This will be done through installing dongles at the cash register terminals. MyEG believes that CSTM should help reduce leakages and improve the government's service tax revenue collection," it said.

The CSTM system will move from the current service tax of 6% to the Good and Services Tax (GST) on Apr 1, 2015. The GST will also be set at 6% initially. CSTM is already GST compliance.

"In 2014, the government is expected to collect around RM850mil service tax under CSTM's Phase 1. Taking into account the country's long-term inflation and economic growth, the base case for the service tax is set at a 10% annual growth over the next six years.

"MyEG will only get compensated if the service tax collection is above the revenue base case scenario. The company will effectively get 20% of any increase in service tax collected above the base case (not including opex and depreciation). However, the company gets nothing if the service tax collection is below the base-case scenario.

"Our sensitivity analysis shows MyEG should break even if CSTM's revenue is 10% above the revenue base-case. We have assumed for MyEG, CSTM's revenue base is 20% above the base-case scenario. This should help contribute RM18mil to RM20mil in net profit to MyEG in FY15/16," it said.

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