Investment Highlights

• We maintain our HOLD call on Mynews Holdings (Mynews) with a slightly higher fair value of RM0.62 (previously RM0.60). Our valuation is based on 21x FY21F EPS, which is at a discount of the average historical PE of 29x to reflect the weak prospect arising from the Covid-19 pandemic.

• Mynews has announced that its wholly-owned subsidiary MYCU Retail Sdn Bhd has executed a licensing agreement with BGF Retail Co Ltd (BGF).

• We think that the new venture bodes well for the group in the long term as it is expected to help improve the capacity utilisation of Mynews’ food processing centre (FPC). However, we believe the full-blown positive effect will only be felt from FY22F onwards as economies recover from the Covid-19 impact.

• Moving forward, we think Mynews’ 4QFY20 earnings performance will be negatively impacted by the CMCO (conditional MCO) in Selangor, KL and Putrajaya from 14 to 27 October 2020. We believe this will further drive down its FPC utilisation rate in the near future.

• We expect earnings recovery to come in from FY21F onwards with a PATAMI of RM20mil. We have assumed a higher number of store openings of 140 (vs. 90 previously) as well as a recovery in sales and margins in FY21F.

• We have lowered earnings estimates for FY20E to a net loss of RM0.3mil (net profit of RM2.9mil previously) but raised our earnings estimates for FY21F and FY22F by 2% and 8% respectively.

• The key takeaways from the special investors briefing call are as follows:
   
  • BGF is South Korea's biggest convenience store operator and owner of the convenience store brand CU. CU is one of the leading convenience store brands with more than 15,000 stores in South Korea.
     
  • The licence is for operating and sub-franchising of CU outlets in Malaysia for a duration of 10 years with an additional renewal term of 10 years.
     
  • By adding CU to the existing retail brands namely, Mynews, WH Smith and Mynews SuperValue, the group is offering Malaysians a new choice and shopping experience from South Korea.
     
  • Mynews targets to open 30–50 stores in 2021 starting from early 2021. This is on top of the initial plan of 100 new Mynews stores in 2021F.
     
  • The addition of CU will open up new growth opportunities and enhance the group's capabilities to meet consumers' demand. It is expected to increase the utilisation of the group's FPC.
     
  • Mynews plans to open up around 500 CU stores in five years. The capex for CU stores will be around RM400K per store, roughly 10% cheaper compared with that of Mynews’ own stores. The group has allocated around RM40mil for this new venture in the next two years.
     
  • The group is aiming for a payback period of less than two years for the new CU stores (lower than the payback of roughly three years for Mynews stores with Maru Kafe).
     
  • The group is not expecting the new CU stores to cannibalize Mynews’ stores as they cater to different target markets. The CU store will focus more on F&B due to its exclusive Korean food offerings. The basket size for a CU store is expected to be more than RM10, higher than that of Mynews stores’ pre-Covid-19 level of RM7.
     
  • The group expects the FPC to reach its breakeven point of 70% by end-2021F. Currently, the FPC is running at a utilisation rate of 33% due to the negative impact of Covid-19 pandemic.

Source: AmInvest Research - 13 Oct 2020