Investment Highlights

• We maintain our BUY call on Mynews Holdings (Mynews) with a lower fair value of RM1.18/share (vs. RM1.24/share previously). Our FV is based on an unchanged PER of 29x FY23F EPS, rolled over from FY22F EPS. There is no adjustment for ESG based on our 3-star rating.

• Mynews’ 1HFY21 net loss came in at RM19.3mil, in contrast to our and street’s forecast of full year profit expectations of RM8.5mil and RM7.9mil respectively. This is below our expectations. MyNews incurred set-up costs for the opening of CU outlets in 1HFY21. We expect stronger earnings in 2022F when footfall improves as the pandemic situation eases.

• Going forward, we expect Mynews to be in the red in FY21F as opposed to our previous forecast of a net profit. We have also reduced the group’s FY22F/FY23F earnings by 68%/12% respectively to account for a lower footfall and store closure. We believe that Mynews would return into the black in 2HFY22 when the National Recovery Programme is slated to end.

• In spite of the weak short-term prospects, we believe that Mynews is still a BUY, given the strong positive sentiment and growth potential stemming from the SUPERVALUE and CU outlets as well as the scarcity premium as one of the few growth stocks in the convenience store (CVS) retail segment in Malaysia. We believe that the group is on track for a 2022F recovery in footfall, although this is dependent on the efficiency of the national vaccination programme.

• Mynews reported a 5% QoQ improvement in revenue to RM104mil in 2QFY21, in spite of prolonged MCO 2.0 measures in the Klang Valley. GP margin was flattish at 31.8% in 2QFY21. We reckon that CU and SUPERVALUE stores as well as the new ichi QQ food line have contributed to the revenue growth in 2QFY21.

• However, Mynews’ quarterly pre-tax loss widened to RM11.5mil in 2QFY21 from RM10.1mil in 1QFY21, lowering PBT margin by 0.8ppt to -11.0%. The group faced higher admin and selling and distribution (S&D) costs relating to the establishment and launching of the CU outlets in 2QFY21. Additionally, WH Smith reported a loss of RM0.6mil in 2QFY21, in contrast to a profit of RM0.35mil in the last quarter.

• On a YoY basis, revenue fell by 23% to RM202.6mil in 1HFY21. This coupled with high depreciation costs and administrative costs from the launch of the CU outlets contributed to a sharp fall in PBT and PBT margins in 1HFY21. On a positive note, lower S&D costs due to a decline in the number of outlets and shorter operating hours helped offset some of the increase in expenses.
• The Food Processing Centre (FPC) churned out a loss of RM3.2mil in 2QFY21, a small improvement from last quarter’s RM3.4mil. We expect the FPC to breakeven in 2H2021, when a decent volume of CU stores is expected to improve the off-take of the fresh food offerings. The group requires a 70% utilisation rate to breakeven.

Source: AmInvest Research - 28 Jun 2021