Investment Highlights

• We maintain our BUY call on Mynews Holdings (Mynews) with an unchanged FV of RM1.66/share, pegged to a P/E of 27x CY19F. 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) offering ready-to-eat (RTE) and bakery products. Key risks to Mynews are: 1) restrictions on the supply of foreign labour (which makes up circa 32% of Mynews’ workers).

• Mynews’ 1HFY19 net profit of RM16.2mil (+22.9% YoY from RM13.2mil in 1HFY18) met both our and street’s expectations, accounting for 49.3% and 49.9% of full-year estimates respectively.

• Key highlights of Mynews’ 1HFY19 results include:

• Mynews’ topline grew 39.2% YoY to RM256.5mil (from RM184.3mil in 1HFY18) on the back of a higher number of outlets of 483 (vs. 385 outlets in 1HFY18) as well as improved product offerings, store concept and the addition of Maru Kafe since 4QFY18.

• EBITDA improved 41.5% YoY to RM27.6mil (vs. RM19.5mil in 1HFY18) in tandem with better sales performance. Subsequently, EBITDA margin rose marginally by 0.2ppt to 10.8% from 10.6% in 1HFY18. We believe this was on the back of an improved basket size in tandem with the installation of Maru Kafe, better product mix, improvement in sales trend, and better management of operating expenses. However, we believe this was slightly offset by higher expenses from the preparation for the launch of its new FPC production which has impacted the margin as well as a 44.3% rise in cost of sales (GP margin -2.3ppts YoY).

• However comparing 2QFY19 against 1QFY19, EBITDA margin eased to 10.6% from 10.9% in 1QFY19 (-0.4ppt QoQ). This was due to increased operating costs from higher staff requirement to operate bigger outlets network and higher average rental of new and bigger stores.

• The FPC in Kota Damansara which will prepare and distribute ready-to-eat (RTE) and bakery products to 600 stores, was completed in early June 2019. We are excited over the commencement of the company’s FPC production. However, we believe the initial gestation period would take at least one year. We opine that in the long run, the group’s gross profit margin should improve underpinned by the upcoming fresh food segment.

Source: AmInvest Research - 24 Jun 2019