Investment Highlights

• We maintain our HOLD call on Mynews Holdings (Mynews) with the same fair value of RM0.54/share, pegged to FY24F PE of 27x - 0.5 standard deviation below its 3-year pre-pandemic (2017- 2020) average of 30x. The FV also reflects an unchanged neutral ESG rating of 3 stars.

• We attended an analyst briefing recently. These are the salient points:
  • While Mynews’ 1QFY23 performance was improving, CU continued to bear losses due to a longer-than-expected gestation period. Also, the group relocated some of its 50%- owned WHSmith outlets which resulted in down time before operations could recommence, leading to a lower share of profit of RM284k (-44% QoQ) in 1QFY23.
  • On the manufacturing front, revenue of its food processing centre (FPC) grew 11% QoQ. Nevertheless, higher raw material costs and additional monthly electricity surcharge of RM30,000–RM40,000 (less than 1% of FY23F bottomline) affected 1QFY23 profitability.
  • The FPC’s low utilisation rate of 60% primarily contributed to a lower gross profit of RM900,000 (-40% QoQ) and subsequently a larger net loss of RM2.5mil (+47% QoQ). This largely stems from unexciting sales from CU stores, although Mynews retail segment performed better. While both brands are involved in food & beverage (F&B) business, CU is more food-centric - contributing 90% of its sales vs. 70% for Mynews.
  • Currently, Mynews outlets are not experiencing staff shortages while CU will need additional 250 workers. The group has adjusted product prices of Mynews slightly upwards while maintaining CU’s merchandise. Given the low sales performance of CU, we do not think price adjustments are likely in the near term.
  • Separately, stock losses and wastages were muted QoQ at 32% but improved 14%-point YoY, which management guided to an average of RM170-RM200 per store on a daily basis. However, this is still above industry’s average of less than 20%.
  • On a side note, some new products were launched for its ready-to-eat (RTE) segment in March, such as morning muffin, croissant, gimbap series and signature laksa. For beverages, there is onde-onde on the menu.
  • Moving forward, the group will continue to monitor inventory wastages while at the same time carrying out cost optimisation activities in every possible aspect to boost its profitability, including realigning its marketing activities to be more efficient in spending. In addition, as financing costs have increased due to higher interest rates, we believe that the group might consider streamlining its borrowings in the future while keeping pace with expansion plans, in line with our projections.
• We remain cautious on the group’s near-to-medium term outlook as CU’s seemingly longer gestation period continues to be a drag, owing to high start-up costs in conjunction with an increasingly competitive landscape. While we take note that existing MyNews stores are recovering gradually, this is still insufficient to offset the losses from both FPC and CU operations. Considering that there are several holidays and Hari Raya festivities in February 2023-April 2023 amid increased travels are prevalent, we expect 2QFY23 performance to be lacklustre.

• Following the tumble of its share price by 13% last Friday following its disappointing results, Mynews currently trades at FY24F PE of 25x, still expensive than its 3-year pre-pandemic low of close to 15x given its struggle in CU business, while offering a marginal dividend yield of 1.7%.

Source: AmInvest Research - 3 Apr 2023