MYNEWS guided its earnings momentum to sustain into 4QFY22. The Company is confident that its food processing centre (FPC) will turn around by 1QFY23, as utilisation at the loss-making unit rises to 80-90%, way surpassing the breakeven level of 70%. We raise our FY23F earnings by 35% to reflect (i) a more aggressive same-store sales growth, (ii) higher net store addition of 50 and (iii) improved cost efficiency.

MYNEWS guided for its top-line and earnings momentum to sustain into 4QFY22 (Aug-Oct 2022), driven by the return of shoppers, commuters and office crowd as economic activities gradually normalise to pre-pandemic levels. Recall, it reported a 21% QoQ jump in top-line in 3QFY22 (May-Jul 2022) that helped to significantly narrow its net loss to RM1.5m from RM10.2m in the preceding quarter.

The Company appeared more confident that its FPC will turn around by 1QFY23, as utilisation at the loss-making unit rises further to 80-90% (from 60-65% 1-2 months ago), which is way above the breakeven level of 70%. The much improved utilisation has been attributable to the arrival of foreign workers in recent months. The increased production has been very well absorbed given the strong demand for fresh food items such as bento, onigiri, and other bakery products at its stores.

We understand that there has been significant improvement to MYNEWS’s fresh food wastage control at about 15%. This is against about 40% at its worst and the industry average of about 20%. This is achieved on the back of better inventory control based on sales projection in accordance to historical data of each store. Better wastage control will translate to margin improvements.

MYNEWS guided for store counts of 461 for MYNEWS and WHSmith, and 126 for CU as at end-FY22 (after factoring in the closure of four stores by FY22). Looking forward, against a backdrop of a full economy reopening, we foresee a more aggressive store expansion plan by MYNEWS.

Source: Rakuten Research - 31 Oct 2022