We may think MYNEWS is a convenience store business. Well, obviously. But first off, how would one identify the business nature of a company? Do we categorise them based on the source of business revenue or profit? At the moment, most companies identify their business according to the revenue generator. If a company generates most of its revenue from selling consumer products, it is a consumer business. The same can be said for Mynews, a convenience store business, which is a type of consumer business. 

But if we identify the nature of a business based solely on how it generates profits, the story can be very different. Take 7-11 as an example. 

Figure 1. 7-11 Revenue, Gross Profit, Gross Profit Margin breakdown:

What do you notice? 7-11's commissions gained from selling game credits, prepaid top up services and so on consist of more than a hundred percent of it total net profit from 2010 to 2013. The commisions business profit margin is a solid 100%, pure profits. Without which, we wouldn't have a profitable business. I am sure many before me have notice this. I am just sharing this very interesting phenomenon that is not much talked about. 

Figure 2. Mynews Revenue, Gross Profit, Gross Profit Margin breakdown:

Coming to Mynews, what do you see now? Their advertising revenue (pure profit) exceeded their total profits in 2014 and 2015. In 2013, it was at least 60 percent of its net profit. Some would intereprete the existence of MYNEWS' convenience stores as merely a platform to generate advertising revenue. A less deviant view is that the advertising proceeds are merely fully reinvested into different parts of the business and MYNEWS can survive without it. If so, MYNEWS could have doubled its net profits by not reinvesting the proceeds into perhaps its marketing cost or distribution cost or any cost component. It is however doubtful that it can do so without losing its edge in the cuthroat grocery retail industry. 

Lastly, and to conclude, we need a change to how companies report their operating segments. MFRS 8 Operating Segments is clearly inadequate. We should know how much profits did the two convenience store companies generate from what some would term their complementary business. Unfortunately, the current standard allows managements to deposit all their sales into a single segment. This severely undermines an investor's abiltiy to truly assess the profit structure of a business. Please do note, I do not imply there should be a change in how we view the profit structure of the convenience store business. Like an oil painting, how a business is perceived can vary.    

Source:

Figure 1- 7-11 IPO prospectus
FIgure 2- MYNEWS IPO prospectus