Tougher times ahead from CU transition
? 1HFY10/22 core net loss of RM16.0m was wider than our and Bloomberg
consensus expectations due to higher-than-expected operating costs.
? We now project Mynews to remain in losses in FY22-23F before turning a
profit in FY24F, as CU’s gestation period could be further prolonged.
? Reiterate Reduce with a lower TP of RM0.33 (1.0x P/NTA) as we now value
Mynews using P/NTA due to its loss-making profile (FY22-23F).
2QFY10/22: Ninth consecutive loss-making quarter at RM8.9m
Mynews Holdings Berhad’s (Mynews) 2QFY10/22 revenue increased by 35.7% yoy to
RM141.1m, mainly driven by a higher store count (556, +37 yoy including 26 new CU
outlets), higher footfall and longer operating hours on easing of lockdown measures. GP
margin improved to 33.9% (2.2% pts yoy) on better margin from CU operations and better
control over inventory wastages. Nonetheless, the higher revenue growth was more than
offset by the increase in operating costs (+37.7% yoy), finance costs (+48.9% yoy) and
depreciation (+21.4% yoy) due to its ongoing aggressive CU expansion plan. Also, its food
processing centre remained in losses of RM2.5m in 2Q22. As a result, Mynews posted a
core net loss (CNL) of RM8.9m, marking its ninth consecutive loss-making quarter.
1HFY10/22 core net loss of RM16m was larger than expected
1HFY22 CNL of RM16m was wider than our estimate and Bloomberg consensus at 82%
and 142% of FY22 full-year loss forecasts, respectively. The underperformance was mainly
due to a higher-than-expected jump in operating, finance and depreciation costs. Although
Mynews’s 1HFY22 revenue jumped 38.5% yoy to RM280.5m, it was not sufficient to
mitigate the distribution/admin/depreciation expenses, which rose by 41%/16%/13% yoy
to RM57m/RM17m/RM32m, and higher finance costs (+23.3% yoy) to expand its CU
operations. YTD, the group has 463 myNEWs outlets and 95 CU stores.
We now project Mynews to remain in losses in FY23F
Owing to the underperformance, we widen our FY22F loss estimate by 53% to RM29.9m
and forecast FY23F to plunge into a loss-making position as a protracted CU gestation
period could signal tough times ahead. This is due to a weakening operating environment
amidst a minimum wage hike, rising building material prices, intensifying competition in the
CVS space and persistent labour shortage, which could result in elevated operating costs
and lower sales demand, and further delay profitability to FY24F.
Reiterate Reduce with a lower TP of RM0.33
We slash our FY22-24F EPS forecasts and now project Mynews to be loss-making for
FY23F as its aggressive CU expansion proves tougher than expected on elevated
operating costs. Hence, we reiterate Reduce on Mynews with a lower TP of RM0.33 (1.0x
P/NTA, 2 s.d. below its 5-year mean of 2.9x) (Fig 7). We now value Mynews using P/NTA
methodology given its loss-making profile in FY22/23F. The discount is to reflect the
intensifying competition in the CVS space and its weakening business fundamentals.