Given the prolonged and volatile intensive lockdown, it’s not surprising that MyNews suffered another consecutive quarterly net loss. While we view that 2HFY21 will face similar challenges, foundations are being placed to ride a post-pandemic recovery such as: opening of Korean-style CSV stores, rollout of its Maru products, expanding more to outside of the Klang Valley. Higher margins are also expected given the rollout of its CU stores and Maru brand. However, downgrade to MARKET PERFORM with a lower TP of RM0.95 given the less rosy outlook in the immediate term.

Below expectation. 1HFY21 core net loss of RM19.3m came in below our/consensus earnings forecasts of RM6m/RM8m, respectively, as intensive lockdown prevailed throughout the period in review. Dividends, historically declared during this period, was absent given the financial challenges posed by the on-going pandemic.

Fewer outlets. YoY, 1HFY21 saw 23% decline in revenue to RM203m on stunted business environment and fewer outlets (–21) from the previous corresponding period to 518. We guesstimate that revenue/outlet fell 23% to RM0.80m/store on an annualised basis (vs initial assumption of 0.94m/store). On a positive note, GP margin remained solid at 32% from the preceding quarter and on track for management’s target of 32% or higher. Given closure of some outlets, lower staff and shorter operating hours, opex fell 12% to RM55m.

QoQ, top-line saw a +5% uptick to RM104m mitigated by: (i) lower sales from outlets in states with restrictive lockdowns and fewer outlets by 6. Our rough estimate revenue/outlets saw a +6% uptick to RM0.79m/outlet (on an annualised basis). GP margin saw stability at 32%. Opex saw a +9% uptick due to opening of its Korean-style CSV (CU) and maintenance of other outlets.

Foundations in place for post-pandemic recovery. While we view that 2HFY21 will be bleak given the prolonged lockdown, we are positive on the foundations placed to ride the economic recovery post pandemic. 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. 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 of the K-Culture, and (iii) potentially boosting the group’s overall margin due to the higher fresh food content of CU stores. In all, MyNews will add in 100 more outlets (both CU and MyNews) for CY21 with half expected to be outside of the Klang Valley. Its latest brand Maru - buns & café (better margins) is expected to ride along these expansion outside of the Klang Valley.

Post results, we slashed our FY21E/FY22E earnings by 75%/4% to RM1.6m/RM17.6m as we slashed our average sales/store assumption to RM0.75m/RM0.98m (previously at RM0.95m/RM1.0m). No change in our GP margins at 33%/35% for FY21E/FY22E in anticipation of improving margins premised on roll-out of its Maru products and CU stores.

Downgrade to MARKET PERFORM as we revised down our TP to RM.95 (from RM1.00) based on unchanged PER of 37x (3-Year mean with a -1SD to mean to account for the lockdown challenges).

Source: Kenanga Research - 28 Jun 2021