MYNEWS is confident that its strong performance in 3QFY22 could be sustained underpinned by signs of consumers reverting to spending pattern prior to the pandemic. It is also possible that its food processing centre (FPC) will turn profitable by 1QFY23, returning the group to the black. We maintain our forecasts, TP of RM0.52 and OUTPERFORM call.

We came away from MYNEWS’s analyst briefing yesterday feeling positive on its outlook. The key takeaways are as follows:

1. MYNEWS is confident that the strong performance in 3QFY22 (May-Jul 22) could be sustained going forward as it is already seeing strong signs of consumers reverting to their spending pattern prior to the pandemic, particularly, demand for ready to-eat (RTE) meals.

2. It is likely that its FPC will turn profitable by 1QFY23 (which means the group will also return to the black as the FPC has been a drag on its bottom line) as its utilisation is expected to rise to 80-90% from 60% currently. This is because MYNEWS has managed to bring in 150 new foreign workers in mid September 2022 who will start work after completion of training for 2-3 weeks. Our forecasts are targeting for MYNEWS to turn around in FY23.

3. MYNEWS closed down >100 non-performing stores during the pandemic. For this FY22, it closed down 48 stores during the first nine months and will shut another four over the remaining three months. It also guided for a store count of 461 MYNEWS stores and 126 CU stores for end-2022. While MYNEWS has yet to provide specific guidance for net store additions in FY23, we assume new 50 stores in our forecast.

We maintain our forecasts, TP of RM0.52 based on 22x FY23F EPS which is in line with the sector’s average forward PER. There is no adjustment to our TP based on ESG given a 3-star rating as appraised by us (see Page 4). Maintain OUTPERFORM.

Risks to our call include: (i) return of movement restrictions, hurting traffic to the stores, (ii) the playing field gets more crowded with new entrants or aggressive expansion by existing competitors, (iii) long gestation periods for new stores, and (iv) reduced overall sales from the generational tobacco ban.

Source: Kenanga Research - 29 Sept 2022