• Maintain BUY, new DCF-derived MYR0.73 TP from MYR0.59, 16% upside and c.1% FY23F (Oct) yield. Mynews recorded a turnaround in 4QFY22, hence reporting a full-year loss of MYR18.2m, which met expectations. We look forward to the group’s first profitable year in three years in FY23, with its performance underpinned by its strategic network expansion, better efficiency, and steady improvements of both its key brands’ operations beyond the recovery from a low base.

• Back in the black. Mynews turned around in 4QFY22, recording a core profit of MYR1.4m (3QFY22: MYR1.5m core loss). This led to FY22 losses of MYR18.2m, which were in line with our and consensus expectations. FY22 revenue came in 60.1% higher YoY from stronger sales owing to the return to normalcy and longer operating hours. Another positive: Contributions from new outlets (585 stores as of Oct 2022 vs 518 as of Oct 2021). FY22 GPM expanded to 33.7% (FY21: 30.5%) due to a more favourable sales mix and the CU business, which commands better margins. Meanwhile, the food processing centre (FPC) recorded narrower 4QFY22 losses of MYR1.7m (4QFY21: -MYR3.5m). Consequently, FY22 core losses narrowed to MYR18.2m (FY21: -MYR43.2m).

• Looking forward to a profitable FY23. We remain positive on management’s approach in streamlining Mynews’ expansion plan (c.100 new stores pa) to better manage start-up costs, which should aid in the gestation of the CU brand. To strengthen the group’s brand appeal, we look forward to Mynews and CU’s improvements in the form of more product launches, introductions of stock-keeping units or SKUs, R&D, fine tuning of offerings to take note of product saleability, and intensified marketing engagements – all of which should effectively improve brand awareness among consumers to ensure sustained earnings. This will be further complemented by the FPC, in our view, which is expected to breakeven in FY23 – this is given the inflow of new workers that are set to boost its utilisation rate further. With the increased gravitation towards convenience store dining culture and fresh food offerings, we believe Mynews stands to benefit from the further normalisation in foot traffic in the Klang Valley and CU’s increased geographical footprint nationwide. Meanwhile, CU’s favourable product mix should continue to effectively support GP margins.

• We maintain our earnings forecast, expecting FY23 to record full-year earnings of MYR13m. Updating the full-year numbers and refreshing our cost of equity assumptions to reflect the more favourable outlook for the group’s sustained earnings delivery, our TP is raised to MYR0.73. This implies 31x CY23F P/E, which is around Mynews’ 5-year mean. It also incorporates a 2% premium, given its ESG score of 3.1, which is above the country median. Maintain BUY.

• Risks to our call include a higher-than-expected increase in the start-up costs for CU and weaker-than-expected consumer sentiment.

Source: RHB Research - 23 Dec 2022