Investment Highlights

• We maintain our BUY call on Mynews Holdings (Mynews) with an unchanged FV of RM1.57/share, pegged to a P/E of 25x FY21F EPS. The PE is at a discount to the historical forward PE of peer 7-Eleven Malaysia of 30x to reflect the smaller number of outlets.

• 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).

• The key takeaways from the investor’s briefing last Friday are as follows: 1. Focused on improving its RTE offerings although utilisation rate remains below 50% as it is still in its early days. 2. Its food and beverages sales mix is steadily improving in FY19 while basket size (average spend per visit) has grown to RM7.43 in FY19 from RM6.51 in FY18. 3. Maru has been rolled out to more than 165 stores and the group plans to add its number. 4. The group remains committed to its network expansion plan to open up around 100 stores per year to fully utilize its completed FPC.

• The group is taking careful steps to ensure they are able to optimise its recipes, logistics and restocking system to ensure optimal take-up rate and minimal wastage. We believe this resulted in the current low utilization rate of below 50% in the FPC. We reckon that the wastages will remain high in the near future as the group’s RTE offerings are entirely new SKUs and are fresh products with a shelf life of only around 3 days.

• We believe that the key to unlocking the group’s FPC’s potential is by connecting with its customers and highlighting the selling points of its RTE products which is consistently fresh, hygienic and convenient food. Hence we expect the group’s marketing efforts will continue to be aggressive in order to better connect to its customers and increase take up rate of its RTE.

• The production volume of its FPC is expected to slow down in 1QFY20 during the holiday and festive season. This is to minimize wastage during low-traffic season. However, we expect production volume to pick up from 2QFY20 onwards. The production volume in Nov 2019 was 685K products, which were rolled out to 325 outlets in Klang Valley.

Source: AmInvest Research - 23 Dec 2019