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This article first appeared in The Edge Financial Daily on April 20, 2018

Mynews Holdings Bhd
(April 19, RM1.47)
Maintain hold with an unchanged target price of RM1.44:
Mynews Holdings Bhd’s planned ready-to-eat (RTE) facility will now be located at its newly acquired site in Kota Damansara, Selangor as opposed to its previous plan of building one from the ground up in Rawang, Selangor. Target operational date remains to be end-calendar year 2018 (CY18). We believe that the stock is fairly valued now with its near-term earnings potential largely priced in. Our earnings forecasts, “hold” call, and TP of RM1.44 (27.6 times CY19 price-earnings ratio, peer average) are maintained.

Contrary to its original plan of building a new RTE facility near its distribution centre in Rawang, Mynews has decided to house it at its warehouse cum office building in Kota Damansara, which it acquired at end of fourth quarter of CY17. We understand that the piece of vacant land in Rawang (60,000 sq ft) will instead be considered for expansion of its distribution centre in the medium term. We note that Mynews will be moving into its 50,000 sq ft office in Kota Damansara by June 2018. By end-CY18, the RTE facility (estimated 100,000 sq ft) should be operational. As per its previous plan, Mynews targets to roll out food supplies to 150 stores in financial year 2019 (FY19).

Having opened 10 stores in first quarter of FY18 (1QFY18) (total store count: 366), store openings would have to be ramped up to meet its internal target of 90 for FY18 (FY17: 62). We model in 75 store openings for FY18 as we view management’s target to be rather aggressive. Mynews targets to maintain the geographical mix of 80:20 between the central region and other parts of Malaysia. Elsewhere, it has launched a loyalty/gift card and it will be rolled out to all stores by end-April 2018.

Capital expenditure (capex) in FY18 is estimated to be higher at RM100 million (FY17: RM21 million) largely due to the set-up of its RTE facility, new office block, store refurbishments, and new store openings. We expect Mynews to maintain its net cash position into FY18-FY19 partly due to proceeds from its private placement (RM77.5 million, completed on Oct 25, 2017). Net cash stood at RM72.9 million as at end-January 2018 or end-1QFY18. — Maybank IB Research, April 18

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