FY20 net loss of RM9.2m (vs. FY19 net profit of RM27.6m) and the absence of dividend came in within our expectations. Moving forward, we reiterate our cautious stance over the group’s near-term outlook, which remains plagued by its non-performing FPC, attributable to the slow take-up rate of its fresh food offerings, as well as the challenging operating landscape. Post-results, we maintain UP with unchanged TP of RM0.480.

Within our expectation. FY20 net loss of RM9.2m came in within our expectation but below consensus’ net loss expectations at RM9.5m/ RM3.9m, respectively. The mismatch with consensus’ forecast could be attributable to poorer-than-expected sales and margins brought by the pandemic-led disruptions. No dividend was declared, as expected.

A troubled year. FY20 plunged into a net loss of RM9.2m from FY19 net profit of RM27.6m. The weaker performance was largely dampened by: (i) poorer sales (-5%) attributable to the temporary closure of outlets and shorter operating hours amid the pandemic lockdown, (ii) thinner GP margin (-3ppt) from poorer sales mix and more aggressive discounts given to drive retail footfall, as well as (iii) higher food processing centre (FPC) losses of RM12.4m due to the sluggish take- up rate for its fresh food product.

QoQ, 4QFY20 net loss contracted slightly to RM5.1m from 3QFY20 net loss of RM6.1m. The foresaid merits rode on the back of stronger sales performance (+5%) and better GP margin (+3ppt), likely attributable to the gradual return of retail footfall coupled with a more favourable portfolio mix following the easing of movement restrictions.

Near-term challenges remain. Moving forward, we remain cautious over the group’s near-term outlook, which remains plagued by the challenging operating landscape due to the intensifying competition within the industry, as well as its non-performing FPC which is still running below 50% capacity, largely attributable to the slow take-up rate for its fresh food offerings. Moreover, the foresaid demerits could be further exacerbated by the lackluster retail footfall, against the backdrop of the worsening Covid-19 situation locally. That being said, the group remains committed to achieve its FPC’s break-even target of 70% capacity in FY22, likely by extending its current fresh food offerings to more sub-urban regions and through its Korean CVS – CU venture which has a high fresh food content of c.60%.

Post-results, we made no changes to our earnings forecasts.

Maintain UNDERPERFORM with unchanged TP of RM0.480, based on 18x FY21E PER (near -2.0SD over its 3-year mean). While we are expecting a better FY21 ahead premised on the expected economy recovery following the successful deployment of Covid-19 vaccine, we are nonetheless concerned over the prevailing uncertainties surrounding the group such as its loss-making FPC as well as the intensifying competition within the industry. Risks to our call include: (i) higher-than-expected sales, and (ii) higher-than-expected gross margin.

Source: Kenanga Research - 22 Dec 2020