Investment Highlights

• We maintain HOLD on Mynews Holdings (Mynews) with a lower fair value of RM0.47/share vs. RM0.54/share previously. Our fair value is based on a 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.

• Mynews’ 1HFY23 net loss of RM10mil was worse than our and consensus’ expectations as we had earlier assumed Mynews to break-even in 2QFY23. The negative variance was mainly due to a higher-than-expected loss at the food processing centre (FPC) resulting from increased raw material prices and electricity surcharge.

• Hence, we cut FY23F-FY25F earnings by 13%-40% after factoring in higher operating cost assumptions at the FPC. We make no changes to revenue estimates as the results were in line with our expectations.

• YoY, 1HFY23 revenue rose by 28% to RM358mil as the number of outlets increased to 615 from 556 in 2QFY22 and in-store sales improved (ISS). Coupled with a gross margin improvement of 2%- point resulting from a better sales mix and lower inventory wastage of 31% vs. 36% in 1HFY22, Mynews’ net loss declined by 48% YoY to RM9.5mil in 1HFY23.

• However, the food processing center (FPC) recorded a larger net loss of RM3mil (+21% YoY) in 2QFY23 due to a rise in raw material prices and electricity surcharge. The long gestation period of the new CU business and higher operating expenses (+18% YoY) from the opening of new stores, had also contributed to the overall net loss.

• QoQ, 2QFY23 net loss of RM6mil almost doubled as revenue declined by 5% due to the fasting month of Ramadan, a shorter month in February and larger losses at the FPC (+19%).

• Separately, WHSmith, a 50:50 joint venture with UK-based WHSmith Plc, registered a mild profit in 2QFY23 on the back of travel resumption at international airports.

• In terms of new stores, the group closed 3 Mynews but added 2 CU and 2 WHSmith outlets, bringing total Mynews/CU/WHSmith stores to 463/133/19 at the end of 2QFY23. All in, Mynews has a total outlet of 615 currently compared to 614 in 1QFY23.

• Although Mynews has been actively rolling out various new products and carrying out marketing and promotional activities for CU stores, we are cautious on the outlook. CU’s gestation period may take longer than expected as competition from other convenience stores and a slowdown in consumer spending may impede footfalls.

• Mynews currently trades at a pricey FY24F PE of 28x, which is higher than its 3-year average of 16x.

Source: AmInvest Research - 20 Jun 2023