Investment Highlights

• We upgrade our call from HOLD to BUY on Mynews Holdings (Mynews) with a higher FV of RM1.66/share (vs. RM1.34/share previously), pegged to a P/E of 27x after rolling over our valuation from FY19F to FY20F. Our PE is in line with 7-Eleven Malaysia’s historical PE ratios.

• We like Mynews for its: 1) aggressive store expansion plans; and 2) franchise opportunities arising from the full autonomy of its myNews.com brand name. Key risks to Mynews are: 1) restrictions on supply of foreign labour (which makes up circa 32% of Mynews’ workers); and 2) delay in the completion of its food processing centre (FPC).

• FY18 net profit came in within our expectations, accounting for 98% of our full-year forecast but below street’s estimate at only 93%. It rose 10.3% to RM26.5mil in FY18 from RM24.0mil in FY17.

• Key highlights of Mynews’ 4QFY18 results include:

1. FY18 topline grew 19.5% on the back of a higher number of outlets of 436 (vs 356 outlets in FY17) and introduction of Maru Kafe in 4QFY18.
2. GP Margin improved 1.4ppts from 36.3% in FY17 to 37.7% in FY178. We believe this was on the back of an increase in SSSG by 0.8% YoY (+2.3% excluding print media). We believe this was attributed to an improved basket size in tandem with the installation of Maru Kafe.
3. EBITDA improved 15.4% to RM38.5mil in FY18 (RM35.4mil in FY17) in tandem with better sales performance. However, EBITDA margin contracted slightly by 0.5ppt to 9.8% in FY18. This was due to higher head office operating costs as more expenses were incurred in preparation for new range of product offerings, launching of its new brand Maru Kafe, and expenses stemming from its temporary ready-to-eat (RTE) food processing centre.

• The FPC, which has the capacity for distribution of RTE and bakery products to 600 stores, is expected to be completed by 1HCY19. We are excited over the upcoming completion of the FPC, however we believe the initial gestation period would take at least one year. We opine that in the long run, MyNews’ gross profit margin would improve underpinned by a higher margin contribution by the oncoming fresh food segment. We maintain our gross profit margin estimates of 37% and 38% for FY19F and FY20F respectively.

Source: AmInvest Research - 17 Dec 2018