FY17 net profit of RM24.0m (+33%) came in within expectations at 95%/97% of our/consensus full-year forecasts. We upgrade our TP to RM2.85 from RM2.50 based on the revised 26x CY18E EPS which is in line with the average regional peers PER. Since its share price has appreciated by 35% and appears to be running ahead of fundamentals. Hence, we downgrade our call from OP to MP.

FY17 within expectations. FY17 net profit of RM24.0m (+33%) came in within expectations of our/consensus at 95%/97%. No dividend was declared for the quarter, as the group typically pays dividend once a year on 2Q. Note that, the group has changed its name from “Bison Consolidated Berhad” to “MyNews Holdings Berhad” effective on 11th December 2017.

YoY, FY17 net profit surged 33% underpinned by: (i) higher revenue (+24%) from the improved sales of existing outlets and supported by contributions from new outlets (356 outlets as of October 2017), (ii) improved gross profit margin at 36.7% (+1.0pp) with higher-margin product mix (F&B, Advertising & Promotion, and Consumer Services segments), (iii) higher contribution from JV, WH Smith by 59% and, (iv) lower effective tax rate of 21.2% compared to 23.2% in FY16. The Group’s effective tax rate is lower than the Malaysian’s statutory tax rate because one of its wholly-owned subsidiaries is a MSC status company which enjoys certain tax incentives.

QoQ, 4Q17 net profit declined by 14% in spite of 9% increase in sales no thanks to: (i) contraction in gross profit margin at 35.6% (-1.6pp) due to unfavourable merchandise mix, (ii) higher operating expenses by 14% due to higher start-up costs of the additional 18 new outlets compared to 16 new outlets in 3Q17, and (iii) slightly higher effective tax rate of 22.9% compared to 22.8% for 3Q17.

Outlook. Looking ahead, earnings contribution for FY18 will be coming from the targeted opening of c.90 new outlets, which is higher than 70 new outlets for FY17 (as of 30th October 2017: total 356 outlets with additional 70 new MyNews outlets, 3 new MH Smith outlets and closure of 8 underperforming outlets). Furthermore, expansion of the new outlets will be supported by the commissioning of its sub-Distribution Centre in Johor, which entails larger outlets opening opportunity in Johor and Melaka as well as improvement in delivery time, and costs savings. Nonetheless, we expect the earnings momentum to be sustained at the current level, pending the gestation period for its in-house foodprocessing facility, which is expected to be completed by end-CY18 (under its JV company, MyNews Kineya Sdn Bhd).

1-for-1 bonus issue. The bonus issue on the basis of 1 Bonus share for every existing MyNews share will be traded Ex-Price on 18th December 2017.

We upgrade our Target Price to RM2.85 (ex-bonus TP: RM1.45) as we change our valuation base year to CY18E. (Previously, based on 23x FY18E EPS). Our current valuation is based on revised 26x CY18E EPS which is in line with its average regional peers. We believe the 26x PER is justified considering MyNews net profit growth averaging at 32% per annum over the next two years. While we are long-term positive on Bison’s earnings growth prospect, its share price appears to be running ahead of fundamentals, which had appreciated 35% since we upgraded our call to OUTPERFORM. Thus, we are downgrading our recommendation from OUTPERFORM to MARKET PERFORM.

Key risks include lower-than-expected opening of outlets, lower–thanexpected sales and higher-than-expected operating expenses.

Source: Kenanga Research - 18 Dec 2017