Mynews Holdings Bhd’s (Mynews) earnings turned around in 4QFY23 and its narrowing food processing centre losses are encouraging.
In its research note, Maybank Investment Bank (Maybank IB) said the expectations for potential cost savings once CU breaks even should also continue to drive earnings recovery in FY24E.
“Hence, our FY24E-25E earnings estimates are lifted by 32% to 83% and we introduce FY26E estimate,” it said today (Dec 22).
With Mynews improving outlook, Maybank IB upgrades its call to BUY from HOLD with a higher TO of 62 sen (an increase of 8 sen) on an unchanged 1.7x FY24E PBV (-1SD to mean).
The research house said the group’s 4QFY23 net profit of RM900,000 compared to 4QFY22 net loss of RM100,000 and 3QFY23 net
loss of RM2.2 million) brings FY23 net loss to RM11 million.
“This is against ours and consensus FY23 net loss estimates of RM13 million and RM14 million. The outperformance was mainly due to higher-than-expected gross profit margins.
“FY23 revenue of RM730 million, which is up 16% year-on-year (YoY) was however in-line at 103% of our full-year revenue forecasts.”
Mynews has recorded net loss of RM20 million for FY22.
Maybank IB said the group’s margin also improved YoY and quarter-on-quarter (QoQ).
“Stronger product mix led to an increase in gross profit margin to 36.5%, up by 2.9ppts YoY and other expenses lifted by 32% YoY due to higher PPE depreciation expenses.
“QoQ, despite flat topline growth, just 0.2 % increase, gross margin grew 1.1ppts QoQ from higher fresh food sales, we suspect,” it added.
It said MNHB’s food processing centre (FPC) also posted lower losses of RM1.8 million compared to a losses of RM2.3 million in 3QFY23.
“(Other) key takeaways from the group’s 4QFY23 results are revenue grew 3% YoY on the back of contribution from new stores, (which is) 6 additional new stores YoY (as well as) selling, distribution, and administrative expenses grew 3% YoY from added labour and headquarter costs from new stores,” it said.
On the revised earnings estimates, Maybank IB said it has revised FY24E-25E earnings estimates by 83%/32% after adjusting for current store operating run rates.
“Although consumer spending trends remain subdued, group earnings are expected to be driven by narrowing food processing centre (FPC) losses and expectations for CU to break-even within the next 6 months.
“The group also plans to open more than 100 stores in FY24 with the bulk of new store openings to be under its Mynews brand. As at end-4QFY23, it had a total store count of 610, comprises of 460 of under Mynews (including 26 SuperValue), 131 under CU and 19 under WHSmith
“Our model imputes more than 80 net new stores annually,” the research house added.
The risks to Maybank IB calls are poor execution or inability to find suitable store locations, which could hinder new store openings and revenue growth.
“Additionally, slower consumption demand growth could result in falling same store sales growth. Higher operating expenses from higher minimum wage and higher rental could also adversely impact earnings.”
