2QFY22: Quarterly Losses Widen
MyNews sustained its yoy revenue generation trend. However, elevated opex for the
quarter widened its sequential losses, missing earnings expectations. That said, we
believe MyNews’ performance should gradually recover going forward. This should be
aided by recent mobility now surpassing pre-pandemic levels and longer operating
hours. The recent selldown has more than priced in its near-term headwinds. Upgrade
to BUY but with a lower target price of RM0.66 (from RM0.80).
RESULTS
• Losses unexpectedly widened. MyNews Holdings (MyNews) reported a RM10.2m net loss
in 2QFY22. This brought 1HFY22 losses to -RM18.1m. This is below our and consensus fullyear earnings estimates of marginal losses. We had expected losses for the quarter but
losses widened against our expectations. While revenue generation per store trended
positively on a yoy basis (+26.7%), the negative deviation is attributed to a spike in opex. We
believe despite sustaining losses for up to two additional quarters, value has emerged for
MyNews.
• Decent revenue generation trend. Top-line grew 35.7% yoy and 1.2% qoq. Store revenue
generation went up by +26.7% yoy off a low base. We believe the qoq store revenue
generation softness (-2.1%) is attributed to the Omicron wave and the fasting month.
However, the enlarged store base on a qoq (3.3%) and yoy (7.1%) basis to 556 stores lifted
overall sales to 1.2% qoq and 35.7% yoy. Given that foot traffic to workplaces and places of
retail has fully recovered to pre-pandemic levels, we expect significantly sequential growth
heading into 3QFY22.
• Losses widened as opex outstripped store revenue generation. Better product mix
improved gross margins to 33.9%, or 290bp qoq. MyNews should continue to improve its
gross margins to pre-pandemic levels of around 36%, alongside increased fresh food sales.
Opex for the quarter grew 12% qoq off its enlarged store base (3.3%), longer operating
hours, increased overhead expenses and marketing spend. Losses widened with the share
of associates, finance cost and food processing centres (to -RM2.6m from -RM2.0m in
1QFY22) weighing on earnings as it contracted 30% qoq to a loss of -RM10.2m (1QFY22: –
RM7.9m).
STOCK IMPACT
• Workplace foot traffic fully recovers to pre-pandemic levels, better conditions for
MyNews’ 3QFY22. Foot traffic to places of retail has been gradually recovering. It is now –
3.0% below pre-COVID-19 levels, an improvement of 9.1ppt from 1Q22. Conditions have
appeared to have fully recovered to pre-pandemic levels. In relation to foot traffic to the
workplace, the recovery trailed places of retail but has since surpassed pre-pandemic levels.
Recent readings dramatically improved since mid- June. We believe this should create more
conducive operating conditions for MyNews heading into 3QFY22.
• Eventual return of pre-pandemic behaviour should gradually lift overall sales.
Malaysia transitioned into the endemic phase on 1 Apr 22. Businesses are now allowed to
operate 24 hours. Gradual consumer lifestyle behaviour reverting to pre-pandemic practices
should gradually lift MyNews’ graveyard sales and, in turn, overall sales. Meanwhile, the
minimum wage hike to RM1,500 from RM1,200, effective 1 May 22, is likely to impact
MyNews’ opex from its 1,800 employees at its store outlets. We assume that MyNews would
attempt to pass on the costs by implementing an ASP hike of 1%, by our estimates.
• 2QFY22 net gearing stands at 0.33x while its coverage ratio is at 3.5x. Management
previously indicated that should net gearing reach 0.5-0.7x, it would then consider equity
financing. Based on our projections with narrowing losses, MyNews’ net gearing should
remain close to 0.3x and not require additional equity financing.
EARNINGS REVISION/RISK
• We primarily cut our FY22 earnings to -RM25m from -RM1m. Key risks include CU store
execution and additional movement lockdown associated with the COVID-19 pandemic.
VALUATION/RECOMMENDATION
• Upgrade to BUY but with a lower target price of RM0.66 (from RM0.80). We roll over our
valuations to 2023 from 2022. Our valuation basis switches to a PE peg of 17x of MyNews’ –
1SD of its mean PE. We had valued MyNews previously on a P/B basis as losses were
projected for 2022. MyNews is likely to see at least two additional quarters of losses. That
said, losses should narrow and we expect it to recover from strength to strength. We believe
value has emerged given its recent selldown, which appears to have been compounded by
its illiquidity.