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

• The key takeaways from yesterday’s FPC launch and briefing are as follows: 1. Its FPC is ramping up nicely, now delivering to around 300 stores. 2. The main focus will be on network expansion now that the FPC has been completed. 3. Mynews introduced myNewsDash, a delivery service for one of its outlet store.

• The FPC, which is built at its headquarters in Kota Damansara with the capacity to prepare and distribute ready-to-eat (RTE) and bakery products to 600 stores, commenced operations on 11 June 2019. Mynews has introduced more than 50 SKUs through its FPC, delivering to around 300 outlets. As it is still in early stages, the utilization rate is low at around 33%

• Positively, production has steadily increased since June (as shown in Exhibit 1) producing circa 655K units per month. There was a dip in production volume in September as promotion was scaled down due to multiple holidays during the month. In 3QFY19, RTE products contributed to around 4% of revenue (roughly calculated as RM5.3mil revenue for around 993K products offered in Jun-July).

• As its RTE offerings are entirely new SKUs and are fresh with a shelf life of around 3 days, the group is bound to face challenges in perfecting its recipes, logistics and restocking system to ensure optimal take-up rate and minimal wastage. Encouragingly, the group was able to reduce wastage from the initial 40% level to around 20% now but remains cautious as its FPC operations are still in its maidenhood and teething issues are inevitable in this early stage.

• YTD, Mynews has opened 79 outlets and closed 17 outlets, resulting in a net increase of 62 outlets, bringing myNews.com outlets to 498. We believe the group is on track towards meeting its annual target of 85 new stores for FY19. For FY20, the group aims to increase outlet additions to 100 stores as it shifts focus towards network expansion. Currently, Maru Kafe has been installed into 150 stores. Recall that in June, outlets with Maru enjoyed a 19% increase in average sales, +15% in average customer count and +13% in average basket size. The group plans to continue to roll out Maru in at least 50 more outlets in the near future. Hence, we expect the group’s average sales and customer count to continue its uptrend.

Source: AmInvest Research - 3 Oct 2019