Investment Highlights

• We maintain our BUY call on Mynews Holdings (Mynews) and its fair value (FV) of RM1.18, based on an unchanged PER of 29x (historical average) FY23F EPS. There is no adjustment for ESG based on our 3-star rating.

• Mynews’ FY21 net loss of RM43.1mil is wider than our and consensus’ expectations. Besides slower-than-expected pick-up in footfall during the quarter, the negative variance was also attributed to the QoQ higher operating expenses as the company beefed up its CU brand’s workforce.

• On a YoY basis, Mynews’ FY21 revenue fell by 18% to RM400.6mil. This, coupled with higher administrative expenses from the launch of the CU outlets, contributed to the wider losses.

• On a positive note, the company’s narrower 4QFY21 net loss of RM8.9mil (vs. RM14.9mil in 3QFY21) pointed to demand recovery. The smaller loss was due to a higher revenue of RM104.1mil (+11% QoQ) as footfall gradually returned given the relaxation of movement restrictions starting mid-August. We believe the pick-up in the country’s vaccination rate and declining trend of Covid-19 cases contributed to the improved consumer confidence.

• Meanwhile, Mynews’ food processing centre (FPC) reported a loss RM3.5mil, a small improvement from last quarter’s RM3.6mil. We expect the FPC to break even in 2HFY22 as its CU stores are expected to improve the offtake of the fresh food offerings. The group requires a 70% utilisation rate to break even. Separately, its jointly controlled entity, WH Smith, reported a small profit of RM50K mainly bolstered by rental rebates.

• We anticipate the company to return to profitability in FY22F, benefiting from the reopening of the economy. Our base case assumption is that there will be no movement control orders moving forward. Mynews is also expected to resume its outlets’ network expansion plan. The company has been aggressively spending on outlet openings, A&P, and increasing workforce in the last two quarters, preparing for the market recovery.

• Our BUY call is premised on the strong positive sentiment and growth potential stemming from Mynews’ SUPERVALUE and CU outlets as well as the scarcity premium as of one of the few growth stocks in the convenience store retail segment in Malaysia.

Source: AmInvest Research - 23 Dec 2021