Investment Highlights

• We maintain our BUY call on Mynews Holdings (Mynews) with an unchanged fair value (FV) of RM1.18/share. Our FV is based on an unchanged PER of 29x FY23F EPS. There Is No Adjustment for ESG Based on Our 3-star Rating.
   
• In spite of a poor near-term outlook, we remain optimistic on the group’s long-term prospects. As a strong recovery proxy, the most significant threat to our call is the government’s inability to maintain cases at a manageable level. Aside from this, we value its scarcity premium as a growth counter in the CVS (consumer value store) retail segment and strong positive sentiment on SUPERVALUE and CU endeavours.
   
• We attended Mynews’ result briefing yesterday. Here are the key takeaways:

1. 7% QoQ growth in transaction count in 2QFY21. The group has experienced a 7% QoQ increase in FMCG purchases and 9% rise in the fresh food segment despite more lockdown restrictions in 2QFY21. The group attributes this to the strong success of CU stores, which performance has already exceeded expectations.

2. The group has lowered its initial FY21F store target to 60– 70 stores from 100. The group will push for 30 of these to be CU outlets, 20 SUPERVALUE, while the rest will be Mynews stores. The opening of some CU outlets has been delayed, with only four stores opened currently. We are optimistic that these will offset some of the foregone income from the closure of 31 outlets in 1HFY21.

3. A potential competitor in emart24? Korean CVS chain emart24 has opened its first reserve store in Bangsar South recently, with plans to set up 300 more in five years. Mynews is confident that CU has the edge, given its synergistic benefits with the Mynews brand in terms of facilities, pre-existing outreach and business know-how. The group also points out that emart24 has opted for a more mini mart-like design so far, rather than a smaller CVS format similar to CU.

4. Mynews SUPERVALUE stores are a success. These largersized outlets have successfully tapped into a customer base that values proximity in purchasing essential items. The group is trying to replicate this success in pre-existing neighbourhood Mynews outlets by supplying more daily essentials to further tap into this demographic.

5. A return to profitability ultimately depends on the control of cases in Klang Valley. With 80% of its stores in Klang Valley, the group has been taking the brunt of the pandemic harder than peers. The group has already made forays into the northern region to diversify its revenue sources.

6. Store expansion outside Klang Valley a core focus. The group highlighted possible economies of scale benefits between Mynews and CU outlets outside Klang Valley. The high food uptake of CU outlets gives the group an opportunity to develop Maru Café facilities in nearby Mynews stores. As such, these Mynews outlets are able to benefit from highmargin fresh food offerings without significant spending on logistics and distribution costs.

7. Growing side contribution in own-label products. While unlikely to contribute a meaningful proportion to sales for now, the group’s in-house products, which include bottled water, toiletries and umbrellas have been growing slowly but surely.

8. Low cash balance not a big deal. With pre-existing debt facilities yet to be drawn down from, as well as numerous debt offers from banks, the group believes that it will not run into significant issues with its current cash holdings.

Source: AmInvest Research - 29 Jun 2021