MYNEWS’s 1HFY23 results disappointed. It was unable to fully absorb higher cost as its top line growth fell short of expectations, resulting in another loss-making quarter in 2QFY23. This also means a longer gestation period for its CU stores. We cut our FY23-24F earnings forecasts by 53% and 46%, respectively, reduce our TP by 20% to RM0.33 (from RM0.41) and downgrade our call to UNDERPERFORM from MARKET PERFORM

Still in the red. MYNEWS disappointed again with a 1HFY23 net loss of RM9.5m vs. our full-year net profit forecast of RM6.5m and the full year consensus net profit estimate of RM7.4m. The variance against our forecast came largely from its inability to grow top line strong enough to absorb higher cost, and higher-than-expected depreciation charges.

YoY, 1HFY23 revenue rose by 28%, thanks to an increase of new outlets launches (addition of 39 new outlets YoY to 595) with longer business hours as well as higher footfall on the reopening of the economy. Its same-store sales grew by 11% to RM0.6m YoY. This coupled with a better product mix (with high-margin CU fresh food) and improved inventory wastage control, helped to almost halve its core net loss.

QoQ, the quarter saw another net loss of RM6.3m (vs. net loss of RM3.2m in the preceding quarter). Its sales came down by 5% on the back of the fasting month and a shorter month in February. The quarter also saw the closure of one outlet with no new addition. On the flipside, same-store sales jumped 24% to RM0.29m.

Forecasts. We cut our FY23-24F net profit forecasts by 53% and 46%, respectively, to reflect higher opex and depreciation charge, and a longer gestation period for its CU stores.

We still forecast a profitable FY23 (vs. a net loss of RM22.1m in FY22) on reduced inventory wastages and improved performance of its FPC, barring a longer-than-expected gestation period for its CU stores.

We lower our TP by 20% to RM0.33 based on our FY23F BV (from RM0.41 based on 19x FY24F PER previously). On tepid earnings projections over our forecast period, we believe the forecast BV is the furthest we will go as far as its valuation is concerned. There is no adjustment to our TP based on ESG given a 3-star rating as appraised by us (see Page 4).

We like MYNEWS for: (i) the still under-penetrated convenience store market in Malaysia with approximately 111 convenience stores per million population currently based on our estimates, vs. Thailand, Japan and Australia at 291, 445 and 268, respectively, (ii) its previously disrupted earnings growth trajectory (due to the pandemic) returning to the growth path with the improvement of its FPC and planned net addition of 50 stores in FY23, and (iii) its differentiation from competitors through Korean products. However, we are concerned over its volatile quarterly earnings trend and a seemingly longer gestation period for its CU stores. Downgrade to UNDERPERFORM from MARKET PERFORM.

Risks to our call include: (i) its CU stores turning around sooner than expected, (ii) further reduction in of inventory wastages at its FPC, and (iii) stronger-than-expected sales of fresh food and ready-to-eat products.

Source: Kenanga Research - 20 Jun 2023