Investment Highlights

• We maintain our HOLD call on Mynews Holdings (Mynews) with a lower fair value (FV) of RM0.50 (from RM0.77 previously), based on a reduced FY23F EPS and unchanged PE of 29x, on par with its pre-pandemic 3-year average (FY17–19).

• Mynews’ 2QFY22 core net loss widened to RM10mil (from RM8mil in 1QFY22) due to increased operating expenses, as the company ramped up the CU brand’s operations. The results are below our and the street’s expectations.

• Post-results, we widened our FY22F net loss to RM29mil (from a net loss of RM6mil) while cutting FY23F earnings by 36% and FY24F earnings by 25%, after imputing higher operating cost assumptions.

• Mynews’ administrative expenses increased by 7% QoQ and 15% YoY to RM9mil as the company increased its CU brand’s workforce and marketing spending. Selling and distribution expenses also jumped 11% QoQ and 46% YoY following the increase in the number of stores and longer operating hours.

• The company opened 26 new CU stores during the quarter, bringing the cumulative 6MFY22 additional new CU outlets to 66 stores. In 2QFY22, Mynews has a total of 556 outlets, a net addition of 18 new stores compared to the previous quarter. YTD, the company reported an additional 38 Mynews stores compared to 6MFY21.

• However, despite the aggressive expansion of the CU brand, Mynews’ revenue has only inched up by 1% QoQ to RM141mil. The cumulative 6MFY22 revenue of RM281mil (+38% YoY) is in line with our expectation.

• Operating cost of the CU brand is expected to remain elevated as Mynews plans to maintain its investment in promotional activities and marketing efforts as part of a brand-building strategy. The CU brand is slow to gain traction, and this raises uncertainty over the timeline of the business to reach breakeven level.

• At 32x FY23F PE, the company trades above its 3-year prepandemic FY17-19 average of 29x.

Source: AmInvest Research - 28 Jun 2022