• Stay NEUTRAL and MYR0.54 TP, 3% upside. We caught up with management recently to obtain updates and details on Mynews’ strategy for outlets expansion and cost optimisation. Essentially, management expects another 6-12 months before the earnings turnaround (we concur) after also considering the overall soft market environment. While we believe things will improve for Mynews, the current +1SD valuation may have been lifted by the emergence of a new substantial shareholder, which we deem unattractive from a risk-reward perspective.

• Driving growth via expansion. Mynews is ramping up its outlets expansion plans, aiming to open >100 new stores (70% Mynews, 30% CU) in FY24 (Oct). The group is exploring opportunities at private and government hospitals, aiming to capitalise on consistent high foot traffic in these locations. The robust expansion of the Mynews brand will be a key driver to offset the losses from other business units, in our view, as it has been delivering robust performances despite various challenges. This is largely thanks to Mynews's versatility in terms of product offerings and store layouts, which enables it to cater to diverse customer needs in different locations. Conversely, with 17 SuperValue stores as of 3QFY23, the group intends to gradually convert some Mynews stores into SuperValue outlets, offering a wider selection of everyday essential items to meet the growing demand for convenient mini-marts. SuperValue distinguishes itself from competitors with cleaner, tidier stores, and competitive prices.

• Enhancing operational efficiency. To downsize CU's losses, Mynews is eyeing enhanced operational efficiency via staff training and technology integration – including data analytics – to improve productivity and fine-tune its offerings. It also plans to be more targeted vis-à-vis marketing investments and more efficient with maintenance expenses. It has also consolidated the teams to manage the Mynews and CU brands collectively, which should lead to more synergistic benefits and cost savings given the larger combined scale. We also understand that the new shareholder is providing valuable insight and suggestions on the business, leveraging on his vast and successful experience in the consumer retail industry.

• The food processing centre or FPC is currently operating at a c.60% utilisation rate. This is expected to ramp-up, based on Mynews’ guidance, in tandem with the new store openings and potential opportunities to supply external parties.

• We make no changes to our forecasts as we expect losses to be under control given the progressive contributions from Mynews and reducing losses at CU – potentially leading to a turnaround in FY24. We keep our DCF-derived MYR0.54 TP (inclusive of a 2% ESG premium), implying 30.3x FY24F P/E or +1SD from the mean. The downside risks to our call are delay in CU turnaround and weaker-than-expected consumer sentiment. The opposite represents the upside risks.

Source: RHB Securities Research - 10 Nov 2023