KUALA LUMPUR (June 24): Convenience store chain operator MyNews Holdings Bhd’s (KL:MYNEWS) turnaround is taking hold following the third straight profitable quarter, analysts said, even as the results were weaker than expected.

MyNews rose as much as 7% or 4.5 sen to 69 sen on Bursa Malaysia on Monday. The stock pared its gains to settle at 67 sen, still up 2.5 sen or 4%, valuing the company at RM502.7 million. Trading volume totalled 4.061 million shares, nearly five times its 200-day moving average.

Losses at MyNews’ CU venture will narrow further and reach breakeven by this financial year ending October (FY2024) thanks to consolidation of CU and Mynews managements, said RHB Investment Bank.

That has “yielded synergistic benefits,” leading to stronger bargaining power and an improved product mix, the research house said. “This should propel group profits to pre-pandemic levels once CU is no longer a drag on earnings,” it said.

Shares of MyNews have gained about 28% so far this year as investors bet on the company’s return to the black after four consecutive years of losses. MyNews is expected to make a net income of RM9 million this year, according to Bloomberg consensus.

Analysts however are now divided in their recommendations with three "sell’ calls, one "hold’ and four "buy’ ratings amid limited upside to its share price moving ahead. The consensus 12-month target price is 69 sen, less than 1% gain from its last price.

“The recent run-up in MyNews’ valuations appears to have more than priced-in MyNews’ anticipated recovery,” said UOB Kay Hian which downgraded the stock to "sell" from "hold’. The research house’s target price is 52 sen, which values MyNews at more than 20 times the forward earnings.

Further, MyNews faces threat from higher minimum wage that was last raised in May 2022, UOB Kay Hian flagged. Every RM100 increase in minimum wage could potentially cut MyNews’ 2025’s earnings by up to 14%, according its estimates.

“MyNews’ earnings are particularly sensitive given its small earnings base relative to the highly labour-intensive nature of its operations,” UOB Kay Hian warned.

On Friday, MyNews reported a net profit of RM1.73 million for its second quarter ended April 30, 2024 (2QFY2024), bringing first-half net profit to RM3 million, which accounted for only 32% of consensus’ full-year forecasts.

MyNews currently operates 622 outlets, comprising 471 MyNews outlets, 131 CU outlets, and 20 WHSmith outlets. The company plans to continue to open new stores and enhance some existing ones while improving product mix and services.