Bolder Outlet Expansion Plan, “Outperform” Rating on MYNEWS: Kenanga IB

MYNEWS reiterated its guidance for a profitable financial year 2023 (FY23), underpinned by higher utilisation at its food processing centre (FPC) and its fresh food wastage being capped low, according to Kenanga Research report. It guided for a net addition of 80 stores in FY23 (which is 60% higher than our previous assumption). The research house has raised both its FY23-24F net profit by 8%, and lifted its target price (TP) by 9% to RM0.76 (from RM0.70) and maintained its OUTPERFORM call on MYNEWS.

The research team came away from a recent engagement with the company feeling reassured of its prospects. The key takeaways are:

*It reiterated its guidance for a profitable FY23 underpinned by higher utilisation at its FPC and its fresh food wastage being capped low.

*It is confident that utilisation at its FPC will rise to 80-90% (from about 60% currently) underpinned by the availability of foreign workers and the growing popularity of its fresh food items.

*It is also confident that its fresh food wastage will be capped at 15-20% (which it has achieved since 4QFY22 which is in line with the industry average vs. c.40% during 1QFY22 to 3QFY22) despite the introduction of new ready-to-eat (RTE) meals. This will be achieved via better inventory control using sales projections based on historical daily sales data of each store.

MYNEWS guided for a net addition of 80 stores in FY23. It will be a balance mix of MYNEWS and CU stores with a total capex of about RM50 million.

Kenanga Research has raised its forecast earnings for financial year 2022-23 (FY22-23F) by 8% each to reflect: (i) a higher net store addition of 80 to bring ourselves in line with the company’s guidance (vs. our previous assumption of 50); and (ii) improved cost efficiency, including more optimal fresh food wastage as mentioned.

The research house is keeping its assumptions on a net store addition of 50 in FY24F. Besides, it is also keeping its same-store sales growth assumption of 12% in FY23 (driven largely by the full-year impact of the reopening of the economy) and normalised 5% for FY24.

In its research papaer, Kenanga likes MYNEWS several reasons such as the still under-penetrated convenience store market in Malaysia with approximately 111 convenience stores per million population currently based on our estimates, vs Thailand, Japan and Australia at 291, 445 and 268, respectively; having returned to the growth path in terms of outlet expansion post the pandemic and the turnaround at its FPC; and its differentiation from competitors through Korean products.

The research house also upgrades its TP by 9% to RM0.76 (from RM0.70) based on an unchanged 22x FY23F PER, in line with the sector’s average forward multiple. There is no adjustment to its TP based on ESG given a 3-star rating. Hence the research house has reiterated its OUTPERFORM call on this counter.

Risks identified include the return of movement restrictions, hurting traffic to the stores; the playing field gets more crowded with new entrants or aggressive expansion by existing competitors; long gestation periods for new stores; and reduced overall sales from the generational tobacco ban.

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