Returning to black. After posting ten consecutive quarterly losses, MYNEWS has finally returned to black in the latest 4Q22 earnings with a core net profit of RM1.4m, which brought FY22 sum to a net loss of RM18.2m (vs consensus RM20.2m net loss). The improvement was mainly due to (i) better product mix, (ii) cost control measures, and (iii) narrowed loss from food processing center (FPC). Notably, average sales per store in 4Q22 exceeded the pre-pandemic level on the back of higher footfall and longer operating hours. FY22 GP margin also expanded steadily from 30.5% in FY21 to 33.7% in FY22, thanks to the CU business and higher sales of fresh food and ready-to eat meals that command higher margins.  

We reckon that the worst is likely over for MYNEWS and remain optimistic that current strong recovery momentum will sustain into FY23, premised by (i) lower loss from the FPC, (ii) higher store count, and (iii) longer operating hours. MYNEWS aims to ramp up FPC’s utilization rate from 60% in 4Q22 to 70-80% (the breakeven point) by 1Q23, following the replenishment of foreign workers. In terms of new store launches, the group plans to launch 80 new stores in FY23, spread between 40 MYNEWS and 50 CU stores. According to consensus, MYNEWS is envisaged to rake in a FY23 core net profit of RM12.0m from a -RM18.2m net loss in FY22.

Beneficiary of China reopening. Riding on a total of 603 store counts in Malaysia, we believe the return of foreign tourists bodes well for MYNEWS’ convenience store sales. With China's border reopened on 8 Jan, the influx of Chinese tourists, which made up 12% of Malaysia’s 2019 total tourist arrivals, could boost its convenience store sales.

A breakout. After a breakout above RM0.68 long-term resistance, MYNEWS is anticipated to extend its bullish momentum, spurring its share price toward RM 0.75– 0.78-0.81 level, supported by the bullish indicators. Cut lost at RM0.60.

Source: Hong Leong Investment Bank Research - 11 Jan 2023