As lockdowns prevailed in 1QFY21, it was not a surprise for MYNEWS to endure a 4th consecutive quarter of net losses. However, we are turning optimistic given the easing of lockdowns and vaccine rollouts. The opening of its Korean CSV outlets plus its new myNEWS SUPERVALUE stores in CY2021 bode well for its prospects. We roll over our valuation base to FY22E and raise our TP to RM1.00 and upgrade it to OP.

Below expectations. 1QFY21 net loss of RM10.6m came in below our/consensus earnings forecasts of RM18m/RM16m, respectively. The shortfall is attributed to the intensive lockdowns especially in the Klang Valley as 80% of its outlets are located in this region. No dividend was declared, as expected.

No respite from the pandemic. YoY, 1QFY21 saw MyNews turning in a net loss as lockdown continued to intensify nationwide during the period. Sales fell 30% to RM99m affected by: (i) shorter operating hours, and (ii) closure of outlets (11 for the period in review). GP margin fell 3ppt to 32% due to shift in product sales mix to daily essential items (that fetch lower margins). On a positive note, operating expenses were contained as it receded (-17%) due to closure of outlets, lower staff and overtime costs due to shorter operating hours.

QoQ, there were a few plus points. FPC costs receded 22% to RM3.4m while its jointly controlled entity WH Smith saw a rebound in earnings to RM0.35m due to higher rental rebates received for the quarter (as the travel industry continued to be affected). However, GP margin fell 1ppt to 32% due to higher promotional expenses.

Economy re-opening building momentum. We are positive on its outlook ahead with easing of lockdown and gradual momentum build-up of the Covid-19 vaccine deployment. Revenue is expected to be supported by the opening of its Korean brand CSV (CU) in April 21 of which MYNEWS is targeting to open between 30 and 50 outlets in CY2021. MyNEWS has plans to introduce 500 CU outlets within five years. Set up costs for CUs are generally lower than MyNews stores (RM360k- RM405k versus MyNews’ RM400-RM450k) due to cheaper fresh food equipments. The addition of CU into the group’s portfolio would: (i) aid in achieving higher utilization for the FPC (currently at c.35%, breakeven at 70%), (ii) allow the group to be the first Korean CVS chain player in Malaysia, by tapping into the persistently rising popularity for the K-Culture, and (iii) potentially boost the group’s overall margin due to the higher fresh food content of CU stores. Furthermore, the inclusion of 20 myNEWS SUPERVALUE stores (catering for the new normal shoppers) in CY2021 would enhance top-line further.

Post results, we slashed our FY21E/FY22E earnings by 67%/13% to RM6.1m/RM18.4m as we slashed GP margin by 3ppt/1ppt to 33%/35%. Note that the pre-pandemic margins were at 38%.

Upgrade to OUTPERFORM with a raised TP of RM1.00 (from RM0.48) as we roll over our valuation base to FY22E ascribing a PER of 37x (-1SD over its 3-year mean from -2SD previously). The still negative SD is due to: (i) potential sales risks coming from CU cannibalizing MyNews’ sales, and (ii) weaker GP margins risks given the long break-even for its CU stores. Given potential total returns of above 10%, we raised our call to OUTPERFORM.

Source: Kenanga Research - 26 Mar 2021