Investment Highlights

• We maintain HOLD on Mynews Holdings (Mynews) with an unchanged fair value of RM0.49/share which reflects a neutral 3-star ESG rating. We continue to peg the stock to a P/BV of 1.6x FY24F, 0.5SD below its 5-year mean of 1.7x.

• Our earnings forecasts are maintained following an analyst briefing. The key takeaways are as follows:
  • Mynews guided that its food processing center (FPC) is likely to break-even in FY24F by ramping up utilisation rate to a breakeven point of 70% and expanding its stores to achieve economies of scale. Currently, its utilisation rate still hovers around 68%. Notably, the bakery segment for FPC has turned profitable although the fresh food segment remains lossmaking. To recap, FPC’s loss before tax has narrowed by 25% QoQ to RM2mil in 3QFY23.
  • Management alluded that CU stores are likely to break-even over the next 6 months by: (i) enhancing product offerings to cater to diverse consumer spending habits with the introduction of new products, and (ii) merging overlapping functions between CU and Mynews to improve cost efficiency. Hence, we project a marginal net profit of RM2.9mil in FY24F.
  • Mynews has restructured 5 MyNews supervalue and 14 MyNews convenience stores. These were converted to new Supervalue minimart concept stores. The group plans to convert an additional 12 MyNews supervalue stores, consequently bringing the total Supervalue stores to 31 by end-FY23F. These Supervalue minimart concept stores will focus on offering a wider range of household products at more affordable prices.
  • We understand that the rationale is to attract B40 and costconscious consumers amid the weaker global economy. The aim for Supervalue concept stores is to provide a convenient shopping experience in neighborhood locations, emphasising value for money products. However, we are neutral on this transformation given the intense competition in pricing and product offerings by rival companies.
  • MyNews guided for a net addition of 100 stores in FY24F with a blend of MyNews, CU and Supervalue stores, which will need a total capex of RM30mil-RM40mil. However, we have only factored in 50 additional stores in FY24F, due to subdued consumer sentiments and higher operational costs that need to be absorbed.
  • Despite new product and store launches, we remain cautious on Mynews’ volatile earnings in the near-term due to: (i) longer gestation period for its CU stores as a result of intense competition and need to improve customer service quality of its frontline staff, (ii) higher operational cost and diseconomies of scale at FPC, and (iii) the expected slowdown in consumer spending caused by inflationary pressures which may impede footfalls to its stores.
• Mynews currently trades at a fair FY24F P/BV of 1.7x, which is in line with the 5-year historical average.

Source: AmInvest Research - 29 Sept 2023