3QFY21 top-line continued to slide given the prevailing restrictions with Net losses worsening on higher depreciation & amortization expenses arising from investments in a Korean brand CSV (CU). Given the risks of a slow progress in achieving its targeted outlets due to the existing restrictions, we reduce our TP to RM0.90 with MARKET PERFORM maintained.

Below expectations. 3QFY21 core LATAMI of RM15m brought 9MFY21 net losses to RM34m, below/above our/consensus estimates of RM2m/-20m as intensive lockdown (especially in the Klang Valley) continued. Dividends were absent given the financial challenges posed by the on-going pandemic

Lockdowns and fewer outlets. YoY, top-line fell 21% to RM296m given the stunted business environment and fewer outlets (-16) from the previous corresponding period to 515. We guesstimate that revenue/store fell 13% to RM0.80m on an annualised basis. Gross margin saw a dip by 2ppt to 31% attributed to change in product mix favouring lower margin products, EBITDA saw 4% improvement to RM39m on lower opex (-36% to RM56m) given the weak business environment. However, depreciation & amortization (D&A) expenses continue to be on an uptrend - which we believe was due to the opening of new CU outlets or conversion of existing outlets to CU/SuperValue stores – which led to a higher net loss of RM34m.

QoQ, top-line saw a 10% dip to RM94m given the intensive lockdown especially in the Klang Valley with fewer outlets by three. We believe revenue/outlets fell 9% RM0.72m. While EBITDA was in the black, the quarter ended on a net loss of RM17m given higher D&A expenses.

Expanding outlets might be a drag. The ease of restrictions for the Klang Valley as it moves into Phase 2 of the National Recovery Phase bode well for MYNEWS as it looks to speed up the opening of more of its Korean brand CSV (CU) stores. MyNEWS is targeting around 30 to 50 CU outlets by CY21. Overall MyNEWS are targeting c.100 stores (CU and MyNEWS) but we believe this target might be revised downwards given the still prevailing lockdown. Given the slow process, achieving a breakeven rate (70%) for its FPC (currently at c.35-40%) might take longer than expected.

Post results, we revised our FY21E to a LATAMI of RM9m (vs RM2m previously). We also revised our FY22E earnings downwards by 9% toRM16m, both on account of lower numbers of outlets. GP margin revised by 2ppt to 31% (for FY21E) but unchanged for FY22E (35%).

MARKET PERFORM maintained as we revised down our TP to RM.90 (from RM0.95) based on PER of 38x FY22 EPS (3-year mean with an attached -1SD to account for the prevailing restriction challenges).

Source: Kenanga Research - 28 Sept 2021