Mynews Holdings Bhd
(July 6, RM1.57)
Maintain hold with an unchanged target price (TP) of RM1.44: While the outlook seems positive given that Mynews is a beneficiary of the new government’s 14th general election manifesto, we believe that opex (that is expansion and labour costs) would have to be monitored. This is due to a possible lag in revenue relative to opex during its expansion phase.
More favourable revenue mix Mynews shared that its second quarter of finance year ended 2018 (2QFY18, from February till April 2018) topline growth of 19% year-on-year (y-o-y) was largely driven by new stores growth while same-store-sales-growth was flat y-o-y. Product categories that saw quicker growth include food and beverage (F&B) (2QFY18/FY17: 43%/42% of revenue).
Meanwhile sales contribution from tobacco and print media continued to decline and they now account for 30%/2% of revenue, respectively (versus FY17’s 32%/3%). Coupled with higher contribution from other operational income at 14% of revenue, 2QFY18 blended gross profit (GP) margin improved 0.7ppt y-o-y to 38.7%. In first half of 2018 (1HFY18), Mynews opened 29 stores and was looking to ramp up its store openings to meet its internal target of 90 in FY18. We have modelled in 75 new store openings for FY18 as we believe that its target is rather aggressive.
Elsewhere, the target operational date for its food processing facility remains to be end-calendar year 2018. It targets to roll out its F&B products to 150 stores in the initial phase and up to 300 stores by end FY19 (full capacity of 600 stores).
On the potential impact of minimum wage hike, we estimate that every RM100 rise in monthly wage would negatively impact Mynews’ earnings by 6% (FY19E earnings as a reference). Of note that Mynews has about 1,600-1,700 total staff force. As this is an industry-wide cost inflation issue, we believe that Mynews and its peers will eventually pass on the higher costs through higher product prices. — Maybank IB Research, July 4