Investment Highlights

• We maintain HOLD on Mynews Holdings (Mynews) with a higher fair value of RM0.49/share (from RM0.47/share) which reflects a neutral 3-star ESG rating. Our valuation methodology has been revised to price-to-book (P/BV) from price-to-earnings ratio (P/E) due to ongoing losses of the group. We now peg the stock to a P/BV of 1.6x FY24F, 0.5SD below its 5-year mean of 1.7x compared to FY24F PE of 27x previously.

• Mynews’ 9MFY23 net losses of RM12mil was worse than our expectation and consensus’. The negative variance was mainly due to a higher-than-expected loss at the food processing centre (FPC), resulting from increased electricity surcharge and diseconomy of scale, as well as longer gestation period for CU stores.

• Hence, we reversed FY23F net profit of RM5mil to a net loss of RM13mil after factoring in higher operating cost assumptions at the FPC and CU stores. We also trim FY24F-FY25F earnings by 56%-75% to reflect lower contributions from the FPC and CU stores.

• YoY, 9MFY23 revenue rose by 21% to RM544mil due to the increase of new outlets launches as well as higher average selling prices of 5%-15%, based on our estimate. Coupled with a gross margin improvement of 1%-point resulting from better sales mix and improved inventory control, Mynews’ net loss declined by 40% YoY to RM12mil in 9MFY23.

• The FPC recorded a higher net loss of RM2.3mil (+13% YoY) in 3QFY23 due to increased overheads cost and reduced economies of scale. The long gestation period of the new CU business and higher operating expenses also contributed to the overall net loss.

• QoQ, 3QFY23 revenue improved by 7% due to the absence of Ramadan fasting month, helping to reduce its net loss to RM2mil from RM6mil in the preceding quarter.

• Separately, the group’s 50%-owned JV, WHSmith, registered a mild profit in 3QFY23 on the back of travel resumption at international airports.

• Moreover, MyNews renovated and realigned 5 Mynews stores to Supervalue concept with plans to achieve a total of 31 Supervalue stores by CY23.

• Despite new products and store launches, we remain cautious on Mynews’ volatile earnings in near-term due to: (i) longer gestation period for its CU stores due to high competition with other convenience stores, (ii) higher operational cost and diseconomy of scale for FPC, and (iii) slowdown in consumer spending caused by inflationary pressures may impede footfalls to its stors.

• Mynews Currently Trades Fairly at FY24F P/BV of 1.7x, Which Is in Line With the 5-year Average.

Source: AmInvest Research - 27 Sept 2023