Investment Highlights

• We maintain our BUY call on Mynews Holdings (Mynews) with an FV of RM1.66/share, pegged to a P/E of 27x FY20F. Our PE is in line with 7-Eleven Malaysia’s historical PE ratios.

• We like Mynews for its: 1) franchise opportunities arising from the full autonomy of its myNews.com brand name; and 2) growth potential from its food processing centre (FPC), which will allow the introduction of ready-to-eat (RTE) and bakery products.

• 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 FPC.

• Mynews’ revenue outlook is positive. We forecast Mynews’ topline to grow by 20% in FY19F and 20% in FY20F underpinned by: (1) the additions of 85 stores, (2) higher average spending per customer and (3) contribution from the RTE products.

• Mynews’ revenue yield or average spending per person is expected to improve by 5% in FY19F and 9% in FY20F, partly driven by Maru Kafe and the roll-out of its FPC products. Maru Kafe is expected to be installed in 150 stores in FY19F vs. 60 stores in FY18.

• Also, although the exclusive contract between Philip Morris and Mynews for the sale of Heets, a “heat not burn” smokeless cigarette device, has ended, we believe that the product would still be able to attract customers and improve sales.

• We forecast Mynews’ EBITDA margin to improve from 10% in FY18 to 11% in FY19F and 12% in FY20F supported by sales of RTE products and Maru Kafe’s offerings.

• Gross margin of RTE products is estimated to be more than triple the non-food products. Currently, the RTE segment accounts for 14% of Mynews’ revenue. We think that RTE segment’s contribution to Mynews’ revenue would increase to 17% in FY19F and to 22% in FY20F.

• Mynews is expected to roll out its RTE products in 2HFY19 when the RM63mil FPC in Kota Damansara, Selangor, is completed by May 2019. Currently, the FPC is 80% completed.

Source: AmInvest Research - 8 Apr 2019