• Maintain NEUTRAL, new DCF-derived MYR0.59 TP from MYR0.70, 7% upside. Results missed expectations, with the group registering another quarter of losses – likely attributable to the slow recovery in Mynews stores and longer-than-expected gestation period for CU. Although challenges may persist for CU in gaining traction to mitigate the hefty start-up costs, we believe Mynews’ positioning as a cyclical proxy remains intact, and look forward to its turnaround – underpinned by a robust expansion pipeline and expected break-even for its food processing centre (FPC).

• Results missed expectations. Mynews recorded a 2QFY22 (Oct) core loss of MYR10.2m which brings 1HFY22 core loss to MYR18.1m. In expectation of the upcoming quarters registering losses (albeit narrowing), results are deemed to have missed our and consensus’ expectations. 1HFY22 revenue came in 38.5% higher YoY, attributable to the higher sales registered following the relaxed movement restrictions, and the increase in the number of outlets to 556 (from 519 in 2QFY21). 1HFY22 GPM grew to 32.5% (from 31.8% in 1HFY21) likely from a more favourable product mix and lower inventory wastages. Nevertheless, we remain cognisant of the higher 1HFY22 opex (+34.8% YoY) due to the rapid expansion of CU outlets, leading to a longer-than-expected gestation period. The FPC recorded narrower 2QFY22 losses of MYR2.5m (2QFY21: MYR3.2m).

• Keeping a close watch over CU. The deeper QoQ losses in 2QFY22, we believe, is a result of the slower-than-expected traction seen in its CU venture. That said – while we stay cautious of the high start-up costs for CU – the worst may be over for the group overall, as the transition to endemicity, broader economic reopening, and further extension of operating hours for the stores should result in narrowing losses, effectively aiding its recovery to a turnaround in 1HFY23. This should be further complemented by the FPC, which is expected to break even by the year end. We commend Mynews for its ability to execute its relatively robust expansion plan, particularly for CU (95 stores since Apr 2021) over the past year, despite challenges due to the pandemic, and look forward to sales growth being underpinned by the further expansion of its store network (currently concentrated within the Klang Valley).

• Still NEUTRAL. We deepen our FY22 forecasted loss to MYR31m (from MYR17m), and slash our FY23-24F earnings by 14-28%, as we impute higher operating expenses moving forward. Our TP drops to MYR0.59 and implies a 31x FY23F P/E (in line with its 5-year mean). Our ESG score of 3.1 for Mynews warrants a 2% premium ascribed to its intrinsic value.

• Risks. The re-imposition of a lockdown in the face of an increasing number of cases, and major delays in the vaccination programme.

Source: RHB Research - 28 Jun 2022