2QFY22 results: Far from an earnings turnaround
Maintain HOLD with a lower TP of MYR0.60
2QFY22 results underperformed largely due to heavy expenses incurred in
tandem with the ramp up of its new CU stores, coupled with ongoing FPC
losses. We project for MNHB to remain in the red in FY22 (–MYR29m) and
cut FY23-FY24 earnings estimates by 39%-82%. With expectations for
continued losses, we switch to a book-based valuation methodology and
derive a lower TP of MYR0.60 based on 2.0x CY23 P/BV (-1SD to mean; vs.
29x normalised PER previously).
Disappointing 2QFY22 results
MNHB’s 2QFY22 net loss of MYR10m (-1% YoY, +30% QoQ) brought 1HFY22
net loss to MYR18m (-6% YoY), below expectations against our/consensus
full-year net profit estimates of +MYR4m/-MYR6m respectively. The
earnings shortfall was mainly due to higher-than-expected expenses
relating to its ramp up of CU stores and ongoing losses at its food
processing centre (FPC).
Still in losses despite normalised business operations
Key takeaways from 2QFY22 results: (i) revenue grew 36% YoY driven by
normalised business operations following the lifting of movement
restrictions, coupled with added contribution from its CU stores, (ii) gross
profit also increased 45% YoY (GP margin: +2.2 ppts YoY) due to CU’s higher
fresh food sales, (iii) MNHB however fell into pre-tax loss of MYR11m (-1%
YoY) given higher labour costs and SG&A expenses related to new CU
stores. As at end-2QFY22, MNHB had 556 stores (+37 [net] new stores YoY)
across its three brands (Mynews, CU & Mynews Supervalue). Separately,
its FPC reported a loss of MYR2.5m (2QFY21: -MYR3.2m).
Revised earnings estimates
Despite consumer mobility improvement and extended business operating
hours, MNHB’s ongoing losses is an outlier vs. the overall consumer sector,
especially in the retail segment. Although its CU stores are gaining traction
within the convenience store market, it remains in its gestation period.
Further, sales momentum may soften in sequential quarters as consumer
spending slows in light of the significant rise in food inflation. Hence, we
now project for MNHB to report a loss of MYR29m in FY22 (vs. MYR4m net
profit previously) and lower FY23/FY24 earnings estimates by 82%/39%.