MYNEWS’s 9MFY22 results beat expectation due to stronger-than expected rebound in sales on the economy reopening. 3QFY22 net loss narrowed to RM1.5m from the RM10.2m posted in the preceding quarter. We reduce FY22F net loss by 35% and raise FY23F net profit by 3%. We raise our TP by 4% to RM0.52 (from RM0.50). Upgrade to OUTPERFORM from UNDERPERFORM.

Its 9MFY22 core net loss of RM19.5m came in narrower than expectations, versus our full-year net forecast of RM33m and the full year consensus net loss estimate of RM25.5m. The variance against our forecast came largely from a stronger-than-expected rebound in sales on the economy reopening.

YoY, its 9MFY22 revenue grew by 52%, driven by: (i) strong rebound in sales as the economy reopened, (ii) an addition of 90 new CU outlets to 111. Meanwhile, its 9MFY22 core net loss narrowed by a significant 42% to RM19.5m (from RM34.2m a year ago) thanks also to a better product mix with high-margin CU fresh food and improved inventory wastage control.

QoQ, 3QFY22 revenue grew by a strong 21%, helping to significantly reduce its core net loss to RM1.5m, from RM10.2m in the preceding quarter.

Outlook. MYNEWS continues to improve its topline by: (i) expanding its CU business by opening new outlets and longer operating hours, (ii) ramping up its utilization rate of the food processing center (FPC) which we estimate currently stands at 60-65%, on track to meet the 70% breakeven by end-2022. We expect better earnings contribution from WH Smith stores (13 stores as current) due to reopening of international borders (WH Smith stores are located in the airports).

Going forward, a strong topline growth fuelled by higher consumer traffic and better product mix should mitigate additional costs incurred in the opening of new stores and promoting CU stores.

Forecasts. We now project a lower FY22F net loss of RM21.3m and raise our FY23F net profit by 3%. We raise our TP by 4% to RM0.52 based on 22x FY23F PER (from RM0.50), which is in line with the sector’s average forward PER. There is no adjustment to our TP based on its 3-star ESG rating as appraised by us (see Page 4). We upgrade MYNEWS to OUTPERFORM from UNDERPERFORM.

Risks to our call include: (i) return of movement restrictions, hurting traffic to the stores, (ii) playing field gets more crowded with new entrants or aggressive expansion by existing competitors, (iii) longer gestation period, and (iv) uncontrolled inventory wastage.

Source: Kenanga Research - 28 Sept 2022