1QFY22 net loss came below our and consensus’s estimates due to higher opex despite higher revenue on the opening of new stores and higher footfall. No dividend as expected. We believe new stores launches will improve top-line but are cautious on margins due to higher opex. Revise FY22E earnings downwards by 16% imputing higher opex. Maintain OP with a lower TP of RM0.85 (from RM1.00) based on FY22E EPS of 2.5 sen at 34x PER, @-1SD of 3-year mean.

Below expectations. 1QFY22 net loss of RM8.8m came below our and street’s net profit estimates of RM19.9m and RM19.4m, respectively. The shortfall was due to higher opex as new outlets are opened. No dividend, as expected.

YoY, 1QFY22 revenue rose by 41.3% thanks to an increase in new outlets launching and higher footfall due to the resumption of economy activities. Opex increased by 36% to RM50.8m (vs. 1QFY21: RM40.6m) on the back of: (i) recruitment of new talents, (ii) marketing strategy expenses, (iii) higher selling & distribution expenses as outlets increased, and (iv) higher depreciation for PPE. As a result, the group suffered a net loss of RM8.8m (vs. 1QFY21: RM10.6m).

QoQ, revenue was up 34%, mainly contributed by retail and manufacturing segments due as the nation moves into a recovery phase. GP margin rose by 31% due to the shift in product sales mix to higher-margin products. Opex rose 12% due to the abovementioned issues.

Outlook. On further reopening of the economy, we are positive on its outlook on the back of: (i) increase the number of openings of its CU stores which will increase its utilization for the FPC (guestimate of the current utilization rate is 40-45%), (ii) increasing number of myNEWS SUPER VALUE and myNEWS CVs stores, and (iii) expansion of its eCommerce order delivery services. Notably, set-up costs for CUs are generally lower than myNews stores (RM360k-RM450k vs. myNews’ RM400-450k) due to cheaper fresh food equipment. However, we are cautious on margins in subsequent quarters due to higher depreciation and marketing expenses before the new outlets crossed the gestation phase.

Post results, we cut our FY22E earnings by 16% to RM16.7m, accounting for higher opex for the new outlets launches, and maintain FY23E estimates.

Maintain OUTPERFORM with a lower TP of RM0.85 (from RM1.00) based on PER of 34x FY22 EPS of 2.5 sen (3-year mean with an attached -1SD). We believe myNews deserves the valuation due to funding challenges.

Source: Kenanga Research - 25 Mar 2022