This article first appeared in The Edge Financial Daily on June 27, 2019
Mynews Holdings Bhd
(June 26, RM1.38)
Maintain buy with an unchanged fair value (FV) of RM1.66: The FV is pegged at a price-to-earnings ratio (PER) of 27 times calendar year 2019 (CY19F), which is in line with 7-Eleven Malaysia’s historical PER.
We like Mynews Holdings Bhd for its: 1) franchise opportunities arising from the full autonomy of its myNews.com brand name; and 2) growth potential from its food processing centre (FPC) offering ready-to-eat (RTE) and bakery products. The key risk to Mynews is the current restrictions on the supply of foreign labour, which makes up about 32% of its workforce.
We attended a briefing at Mynews headquarters where the recently completed FPC is located, and came away feeling positive on the company’s future prospects. The FPC, which started operations on June 11, 2019, has a built-up area of 120,000 sq ft, making it the largest centre to serve the convenience market in Malaysia. We are excited about the commencement of Mynews’ FPC production, which we believe the initial gestation period would take at least a year.
We opine that in the long run, Mynews’ gross profit margin should improve, underpinned by the fresh food segment. We forecast the company’s earnings before interest, taxes, depreciation and amortisation (Ebitda) margin to grow to 11.6% in financial year 2020 (FY20F).
Mynews offers freshly baked goods and microwaveable food. The company targets to roll out 25 stock keeping units (SKUs) from two joint ventures — Ryoyu Baking and Gourmet Kineya — by end-2019.
The company has introduced some of its SKUs to its outlets. With the addition of its RTE and bakery products, we believe its sales mix will skew more towards food and beverages (F&B) products. We reckon that F&B products will help improve Mynews’ gross margin in the long term.
Mynews has installed Maru Kafe in over 90 stores. Stores with Maru Kafe saw a double-digit increase in the number of customers, average spend per customer as well as average store sales.
However, Mynews’ sales mix in the second quarter of FY19 (2QFY19) actually saw a slight decline in revenue contribution from F&B, due to higher tobacco sales. As tobacco is one of the lowest margin product categories, Mynews’ 2QFY19 Ebitda margin declined slightly by 0.1 percentage point year-on-year to 10.6%. — AmInvestment Bank, June 26