Investment Highlights

• We maintain our HOLD call on Mynews Holdings (Mynews) with an unchanged fair value of RM0.60. Our valuation is based on 21xFY21F EPS, which is at a discount of the average historical forward PE of 29x to reflect the weak prospect arising from the Covid-19 pandemic.

• The key takeaways from the results briefing call are as follows:
   
  • Mynews' food processing centre (FPC) utilisation rate is now at 35%. Moreover, the group is planning to gradually build up the utilisation rate to reach its breakeven point of 70% by 2021.
     
  • Sales mix has begun to recover following the recommencement of the group's FPC production. As such, we think that the group’s gross profit margin will improve in subsequent quarters as ready-to-eat (RTE) and baked goods garner relatively high margins. We estimate a gross profit margin of 33.6% in FY20F.
     
  • Average ticket size is gradually normalizing. It is now at around RM9.68, from RM13 at the peak of the MCO. However, group sales were lower due to lower footfall during the conditional MCO.
     
  • Around 95% of Mynews outlets are operational now. As restrictions are eased and the recovery MCO (RMCO) is implemented, we think sales will improve on the back of higher footfall albeit with a lower ticket size as sales mix normalizes.
     
  • We think ticket size will gradually fall in subsequent quarters as consumers’ purchase will be more spread out as they have more freedom to shop around.
     
  • Mynews is planning to open 50–60 new outlets in 2020 due to the current pandemic. Two of the new stores will be supervalue stores, located in Melaka and Alor Setar. These stores will be bigger format stores carrying larger selection of essential items to cater to the new norm at selected locations. In 2021, the group plans to open 100 stores.
     
  • Moving forward, we think Mynews’ earnings performance will begin to recover from 4QFY20F onwards. We estimate FY21F PATAMI of RM19.6mil following a recovery in sales assuming that the Covid-19 situation gradually improves.

Source: AmInvest Research - 1 Oct 2020