Investment Highlights

• We maintain our HOLD call on Mynews Holdings (Mynews) with a lower fair value (FV) of RM0.41 (from RM0.50 previously), based on FY23F target PE of 24x (from 29x). Our new target is based on -1SD to the stock’s prepandemic 3-year average (FY17–19) given the increasingly competitive convenience store retail sub-segment.

• The group’s 9MFY22 core net loss of RM20mil is largely above our expectation given our earlier FY22F loss of RM29mil.

• Hence, post-results, we reduce FY22F net loss to RM22mil after imputing a higher sales assumption and adjusting our gross margin to 34% (from 33%). We made no changes in FY23F-24F earnings.

• Mynews’ 3QFY22 core net loss narrowed to RM2mil (from RM10mil in 2QFY22) on the back of stronger revenue of RM170mil (+21% QoQ, +81% YoY). This is mainly attributed to stronger in-store sales, driven by the reopening of the economy and higher number of outlets.

• In 3QFY22, Mynews has a total of 573 outlets, a net addition of 17 new stores compared to the previous quarter. YTD, the company reported an additional 58 Mynews stores compared to 9MFY21.

• Notably, Mynews’ 3QFY22 administrative expenses reduced by 10% QoQ to RM8mil due to cost-cutting measures undertaken by the company.

• Meanwhile, selling and distribution expenses jumped 10% QoQ and 53% YoY following the increase in the number of CU stores. The company opened 24 new CU stores during the quarter, bringing the cumulative 9MFY22 additional new CU outlets to 111 stores.

• Despite the positive 3QFY22 results, we maintain our conservative view on the company’s prospects. The longer-than-expected gestational period of the CU brand together with the need for heavy promotional activities and marketing efforts to attract consumers could signify that the convenience store retail sub-segment is a highly competitive space. This stems from the entry of several new players and may limit the company’s long term earnings growth potential.

• The stock currently trades at a fair FY23F PE of 24x, at - 1SD of its 3-year pre-pandemic FY17-19 average given the highly competitive convenience store retail sector in which the company is still expected to register a 4QFY22 loss in the near-term.

Source: AmInvest Research - 28 Sept 2022