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’ 1QFY22 core net loss narrowed to RM7.9mil (from RM8.9mil in 4QFY21), underpinned by stronger revenue. However, the results were deemed below our and street’s expectations. The negative variance is mainly attributed to higher-than-expected operating expenses as the company ramped up the CU brand’s operation.

• Its strong 1QFY22’s revenue of RM139.4mil (+34% QoQ, +41% YoY) was in line with our expectation, accounting for 27% of the full-year forecast. The improvement in revenue reflected a return of footfall to Mynews’ outlets following the reopening of the economy.

• Benefitting from the demand recovery, Mynews’ food processing centre (FPC) losses shrank to RM2.0mil (vs. 4QFY21: RM3.5mil). The FPC is expected to break even in 2HFY22 as the utilisation rate picks up, driven by demand for fresh food offerings from the CU stores. The group requires a 70% utilisation rate to break even. Separately, its jointly controlled entity, WH Smith, reported a small profit of RM72K mainly bolstered by rental rebates.

• Notably, Mynews’ administrative expenses increased by 6% YoY and 18% QoQ, to RM8.37mil as the company beefed up its CU brand’s workforce and increased its marketing spending. Selling and distribution expenses also jumped 20% QoQ and 37% YoY following the increase in the number of stores and longer operating hours.

• After several quarters of shrinking its store network, Mynews is back on the growth track. The company reported 20 net additional stores during the quarter, bringing its total outlets to 538. In line with the company’s strategy to focus on the CU brand, Mynews added 40 new CU outlets during the quarter.

• We cut FY22F earnings by RM4.3mil, to RM5.0mil after imputing higher operating expenses assumption.

• We anticipate the company to return to profitability in FY22F, riding on the reopening of the economy. We are optimistic on the company’s long-term prospects stemming from the potential of its Supervalue and CU outlets.

Source: AmInvest Research - 25 Mar 2022