FY21 saw a LATAMI of RM43m given the volatile restrictions with the targeted opening of its Korean brand CSV (CU) outlets temporarily shelved. Net losses worsened on higher depreciation & amortization expenses arising from investments in CU. On a positive note, 4QFY21 saw a positive top-line growth on easing of restriction from Sep-15. The easing of restriction bodes well for MYNEWS as we expect completion of its planned CU stores by end of CY21. While MYNEWS are targeting c.200 new stores (both CU and MyNEWS) for FY22, we see hiccups ahead arising from funding challenges. FY22E earnings revised upwards, hence TP is raised to RM1.00 based on a lower FY22E PER of 34x on account of funding challenges. Given the share price weaknesses, we revised our call to OUTPERFORM.

Below expectations. 4QFY21 core LATAMI of RM9m brought FY21 net losses to RM43m, below both our/consensus estimated losses of RM9m/RM31m as restrictions continued to prevail into October. Dividends were absent given the financial challenges posed by the on-going pandemic.

Targeted new outlets failed to take off. YoY, top-line fell 18% to RM401m given the stunted business environment. We guesstimate that revenue/store fell 13% to RM0.80m on an annualised basis. Gross margin saw a slight dip of 3ppt to 30% attributed to change in product mix favouring lower margin products coupled with fairly stable freight charges with no supply disruptions seen. EBITDA improved slightly (30bps) on account of lower Opex. However Depreciation & Amortization Expenses (D&A) remained elevated on account of further investments in FPC (Phase 3) and new outlets, mostly in 3Q.

QoQ, top-line saw an 11% improvement to RM104m as restrictions eased in the middle of 4Q. We believe revenue/outlet improved 11% to RM0.8m. EBIT was in the red as Opex jumped >100% to RM32m which we believe stemmed from A&P and labor expenses as MyNEWS prepares for opening of its CU outlets from October onwards which led to LATAMI falling 40% to RM9m.

Outlets expansion might be a drag. The easing of restrictions in the Klang valley and nationwide as the country moves into Phase 4 of the National Recovery Phase bode well for MYNEWS as it looks to speed up the opening of more CU stores, looking on track to achieve 50 CU outlets by CY21 (from 4 in Sep 2021). Moving ahead MyNEWS is targeting c.200 stores (CU and MyNEWS) for FY22. However, we see risks ahead in achieving this target arising from funding challenges due to its weak cash flows. Given the potentially slow progress of opening new CU stores, achieving a breakeven rate (70%) for its FPC (currently at c.35-40%) might take longer than expected.

Post results, we revised our FY22E PATAMI to RM20m (from RM16m previously) on account of: (i) improved margins (by 50bps), (ii) net addition of stores of 130 (vs. 80 previously), and (iii) average sales growth of 25% (vs 35% previously). We also introduce our FY23E earnings.

Call upgraded. In tandem with the revised earnings, our TP is raised to RM1.00 from (RM0.90) based on a PER of 34x (3-year mean with an attached -1SD). We feel this justified given the challenges of funding ahead. However, given the weakness in its share price recently, our call is revised to OUTPERFORM.

Source: Kenanga Research - 23 Dec 2021