Investment Highlights

• We maintain our BUY recommendation for Mynews Holdings (Mynews) with an unchanged fair value (FV) of RM1.24. Our FV is based on an unchanged PER of 29x EPS FY22F. There is no adjustment for ESG based on our 3-star rating.

• Mynews reported a net loss of RM8.9mil for the quarter. This was below our expectations and consensus estimates. For the full year, we were forecasting a net profit of RM18.1mil while consensus was estimating a net profit of RM15.8mil.

• We lower our FY21E earnings forecast by 29% to account for store closings and the more severe-than-expected effects of the MCO on footfall. However, we increase FY23F earnings by 12% to account for higher product mix by CU’s higher fresh food contribution.

• We believe that the worst is over. Earnings and footfall will start to improve over the course of FY21F with the loosening of MCO restrictions, especially in the Klang Valley where 80% of Mynews outlets are located.

• We are still optimistic in the contribution of CU stores as an earnings driver as well as its synergistic effects on Mynews stores as a means to offload FPC produce.

• Food processing centre (FPC) losses amounted to RM3.4mil for the quarter. We predict that FPC earnings will start turning positive in 4QFY21, when its utilization rate is expected to hit its breakeven rate of 70%.

• Revenue fell by 29.8% YoY to RM98.7mil in 1QFY21 as result of lower footfall and store closure. Noticeably, there was a 4.1% YoY decline in administration expenses in 1QFY21 as costs in the HQ and FPC fell. Likewise, distribution expenses decreased by 20.4% YoY or RM5.1mil in 1QFY21 due to a drop in the number of outlets.

• The number of outlets decreased from 535 in 1QFY20 to 524 in 1QFY21. Going forward, the company still targets to open between 30 and 50 CU outlets this year, as well as 20 myNEWS SUPERVALUE stores to cater to changing consumer tastes.

Source: AmInvest Research - 26 Mar 2021