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 FY20F which is close to -2SDs of 7-Eleven Malaysia’ 3- year average forward PE.

• 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 risk to Mynews is restrictions on the supply of foreign labour (which makes up circa 32% of Mynews’ workers).

• Mynews’ 9MFY19 PATAMI of RM23.6mil (+15.7% YoY) was in line with both our and street’s full-year earnings estimates, accounting for 71.7% and 72.8% respectively.

• Key highlights of Mynews’ 9MFY19 results include:

• Mynews’ revenue grew 37.6% YoY to RM388.2mil in 9MFY19 on the back of a higher number of outlets of 472 (vs. 404 outlets in FY18) as well as an increase in sales from its existing stores, mainly contributed by the F&B and tobacco categories.

This was mainly on the back of improved product offerings, store concept and the addition of Maru Kafe since 4QFY18. Stores with Maru Kafe saw double-digit growth in basket size, customer count and outlet sales.

• The higher revenue translated to a 34.6% rise in 9MFY19’s EBITDA of RM39.7mil. EBITDA margin slipped 0.2ppt YoY to 10.2% in 9MFY19 due to start-up costs for the FPC and new outlets and aggressive marketing initiatives. EBITDA margin was also eroded by increased sales of tobacco, which are lower value-added products.

• The FPC in Kota Damansara which prepares and distributes RTE and bakery products to up to 600 stores, commenced operations on 11 June 2019. We are excited over the commencement of the FPC’s 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 - 27 Sept 2019