Investment Highlights

• We maintain our SELL call on Mynews Holdings (Mynews) with an unchanged FV of RM1.31/share, pegged to a P/E of 27x FY19F, in line with 7-Eleven Malaysia’s historical PE ratios.

• Apart from lofty valuations, Mynews faces intense competition from Family Mart’s imposing store presence and products.

• We maintain our earnings forecast as Mynews’ results were within our estimates. The upside to Mynews includes: 1) better-than-expected product offerings to drive in-store sales; and 2) an acceleration in store expansion.

• Mynews reported a 3QFY18 core net profit of RM7.3mil (QoQ: +6.4%, YoY: 17.7%). This brought 9MFY19 earnings to RM20.4mil (YoY; +9.1%). This is in line with our forecast but below consensus estimates, accounting for 73% and 70% of projections respectively.

• Topline grew by 20% YoY in 3QFY18 supported by Mynews’ aggressive 20% expansion in new stores. The number of stores increased to 404 in 3QFY18 from 338 in 3QFY17.

• Gross margin improved by 1ppt in 9MFY18 mainly due to a better product mix. However, operating margin deteriorated by 1ppt as it incurred higher cost related to beefing up its ready-to-eat (RTE) and fresh food segments.

• Going forward, we expect the following: i) Topline growth to be sustained by an expansion of 90 new stores in FY18F. This would bring its store count to 446 in FY18F vs. 356 in FY17. ii) While we are excited over the completion of the group’s food processing facility in FY19F, there may be start-up costs, which would affect profitability. However in the long run, its gross profit margin should improve, underpinned by a higher margin contribution by the oncoming fresh food segment. We expect Mynews’ gross profit margin to improve from 37% in FY19F to 38% in FY20F.

Source: AmInvest Research - 25 Sept 2018