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).

• We attended a briefing at Mynews’ HQ where the recently completed food processing centre (FPC) is located. We came away feeling positive on the future prospects of Mynews. The key takeaways are:

• Mynews commenced operations of its new FPC on 11 June 2019. The FPC has a built-up area of 120K sq ft, making it the largest centre to serve the convenience market in Malaysia. 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 fresh food segment. We forecast Mynews’ EBITDA margins to grow to 11.6% in FY20F.

• Mynews now offers fresh baked goods and microwaveable food. The company targets to roll out 25 SKUs (stock keeping units) from two JVs i.e. Ryoyu Baking and Gourmet Kineya by end-2019.

• The company has introduced some of its SKUs to its outlets. With the addition of its RTE and bakery products, we believe its sales mix will skew more towards F&B products. We reckon that the F&B products will help improve Mynews’ gross margin in the long term.

• Mynews has installed Maru Kafe in over 90 stores. Stores with Maru Kafe saw a double-digit increase in the number of customers, average spend per customer as well as average store sales.

• However, Mynews’ sales mix in 2QFY9 actually saw a slight decline in revenue contribution from F&B. This was due to an increase in tobacco sales. As tobacco is one of the lowest margin product categories, Mynews’ 2QFY19 EBITDA margin declined slightly by 0.1ppt YoY to 10.6%.

Source: AmInvest Research - 26 Jun 2019