Investment Highlights

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

• We cut our FY21E net profit forecasts by 34% to take into a lower-than-expected number of stores being opened as well as the effects of lower consumer appetite during the second MCO.

• Nonetheless, we remain confident in the group’s FY22F recovery prospects based on returning footfall volume and the expected success of its Ichi QQ food line and CU outlets.

• Key highlights from the virtual meeting last Friday:

1. While February 2021 was soft, the group is seeing an uptrend in March, with a stable and growing basket size. Affected clusters such as malls, transit and mixed-development are showing double-digit growth recovery. Mynews needs a 30% increase from its current operational metrics to breakeven.

2. Gross profit (GP) margin levels are currently at around at 32%. A gross profit margin of 35% is the goal. GP margins for CU stores are expected to be higher, given its food-centric nature.

3. So far, 150 Mynews outlets have started selling Ichi QQ bakery goods, which provide a cheaper alternative to Maru products. The response has been positive so far.

4. The group has devoted its Mynews outlets expansion efforts towards the northern region as footfall in the southern region is still weak. So far, the fresh food segment has been well accepted.

5. The group has reduced the number of expected outlet openings in FY21F to 100. These include 20 Mynews SUPERVALUE outlets and 30 to 50 CU outlets. The remaining 30 to 50 will be Mynews stores. CU stores will expand at a higher rate in future.

6. Currently, the food processing centre is functioning at about 30% capacity. The group expects to break even at endFY22F.

7. The group noticed a change in consumer trends during the second MCO compared with the first MCO. During the second MCO, there was less home pantry loading while sales for indulgent products, including sin goods and ice cream, were higher.

Source: AmInvest Research - 29 Mar 2021