Investment Highlights

• We maintain our HOLD call on Mynews Holdings (Mynews) with a lower fair value of RM0.54/share (vs. RM0.56/share previously) on revised earnings forecasts and rolled forward FY24F PE of 27x - 0.5 standard deviation below its 3-year prepandemic (2017-2020) average of 30x. The FV also reflects a same neutral ESG rating of 3 stars.

• 1QFY23 net loss of RM3mil was below our forecast as we did not expect the group to make losses again, after turning around in 4QFY22.

• Hence, we cut our FY23F/FY24F earnings by 52%/37% after factoring in lower net store openings (70 for FY23F and 60 for FY24F) and slower sales growth per outlet. We also introduce FY25F earnings of RM32mil, premised on a revenue growth of 13% YoY.

• YoY, 1QFY23 revenue rose by 32% to RM184mil, buoyed by 58 outlet additions, longer business hours and improved in-store sales (ISS). Coupled with a gross margin improvement of 3%- point YoY resulting from a better sales mix, Mynews’ net loss reduced by 59% YoY.

• However, its food processing center (FPC) continues to operate at a widened loss of RM2.5mil (+27% YoY) due to a rise in raw material prices and electricity surcharge. The long gestation period of new CU business, alongside the additional new store opening costs, have also contributed to the net loss.

• Likewise, 1QFY23 reversed to a loss from a net profit of RM1.4mil in 4QFY22 even though revenue was up 2% QoQ.

• Separately, WHSmith, a 50:50 joint venture with UK-based WHSmith Plc, managed to barely breakeven with a net profit of RM284k (-44% QoQ, +4x YoY) in 1QFY23.

• Mynews’ 1QFY23 administration expenses went up by 4% YoY as workforce increased in line with more store openings. Accordingly, selling and distribution spending also jumped by 31% YoY.

• In terms of new stores, the group added 6 Mynews, 6 CU and 2 WHSmith outlets, bringing its total Mynews/CU/WHSmith stores to 466/131/17 as at end-1QFY23. All in, Mynews has a total outlet of 614 currently versus 600 in 4QFY22.

• We remain cautious on the group’s near-to-medium term outlook as the gestation period for CU may take longer-thanexpected, and view that further aggressive expansions will likely crimp its bottomline.

• Mynews currently trades at a fairly valued FY24F PE of 29x, near its 3-year pre-pandemic average of 30x, while offering a slight dividend yield of 1.7%.

Source: AmInvest Research - 31 Mar 2023