CGS International Company in its Flash Note today (Mar 29), said they came away from Mynews Holdings’s 1QFY1/24 analyst briefing held on 27 Mar 2024 with their thesis on the company and its shares intact.
Despite the soft consumer sentiment, Mynews continues to experience revenue growth, fuelled by increased footfall at its stores, the company said.
CGS Add call for Mynews is based on increased revenue from store openings driving utilisation of its food processing centre (FPC), which, in turn, should drive earnings back to FY19 levels by FY26F.
Against this backdrop, its shares are trading at an undemanding 12.9x CY26F P/E. CGS’ TP of RM0.89 values the company at 21x CY26F P/E while 7-Eleven and its regional peers are trading at 20-25x P/E.
Mynews store expansion and fresh food sales are key focus areas
While soft consumer sentiment has kept basket sizes flat, said management, there has been increased footfall, which lifted revenue in 1Q24 (+6.2% yoy, +5.0% qoq).
Utilisation of its FPC is currently at 70% on one shift. Management said its focus is to grow sales on the retail front via the expansion of Mynews store formats and increase the percentage of fresh food product sales for its Mynews stores from 10-20% currently (CU: 50%).
Target expansion of stores is guided at 80-100 stores in FY24F, to be accelerated in the coming quarters with more emphasis on the Mynews brand.
Management is seeing healthy demand for its own brand Maru Coffee in Mynews stores and plans to roll out standalone Maru Kafe outlets that sell its own brand beverages, bakery products, and RTE food from its FPC and possibly outsourced desserts.
The average size, and, therefore, capex (RM100k-200k per store), of Maru Kafe stores would be smaller than that of an average Mynews store.
These new format stores will be rolled out slowly at first to gauge consumer reaction and demand, management said.
CGS reiterates Add, with an unchanged GGM-based TP of RM0.89
CGS reiterates their Add call and GGM-based TP of RM0.89. Mynews currently trades at 12.9x CY26F P/E, a heavy discount vs. 7-Eleven Malaysia’s 23x and regional peer CP All’s 17.5x. At our TP, Mynews would trade at 21.3x CY26F P/E (a 15.7% discount to ASEAN peers’ historical P/E and a 9.7% discount to global peers’ historical P/E).
CGS thinks Mynews will be able to return to profitability in FY24F and to its pre-Covid-19 high core net profits by FY26F, which they believe has yet to be factored in by the market despite its improved performance in FY23.
Re-rating catalysts: execution of store opening targets and increasing utilisation of its FPC, leading to strong earnings recovery and growth.
Downside risks: a sharp increase in operating costs and lower-than expected net store additions.
Executing a focused expansion plan
Mynews’s CU convenience store business was already EBITDA positive as of end-1Q24, albeit still loss-making.
The losses are reducing mom and management is hopeful for CU to break even at the net profit level by endFY24F.
Losses are reducing due to rising sales (1Q24 CU sales: +20% vs. 4Q23; Ramadan month sales this year saw double-digit growth compared to last year’s Ramadan month sales).
Mynews currently has 500k registered members on its app and plans to revamp its CRM system to include all other brands (CU, WH Smith, Supervalue) in the membership ecosystem to create stickiness.
Mynews stores (excluding CU and WH Smith) achieved an all-time high market share among the Malaysian convenience store industry in terms of sales of 9.02% by end-1QFY24 (from 8% in 3QFY20), based on a study done by AC Nielsen.
Its second-largest shareholder, JAG, provides advice and assistance on marketing initiatives. JAG has also helped facilitate negotiations with landlords at certain locations.
