This article first appeared in The Edge Financial Daily on April 9, 2019

Mynews Holdings Bhd
(April 8, RM1.40)
Maintain buy with a fair value (FV) of RM1.66: We maintained our “buy” call on Mynews Holdings Bhd (Mynews) with an FV of RM1.66 per share, pegged at price-earnings (P/E) of 27 times financial year 2020 forecast (FY20F). Our P/E is in line with 7-Eleven Malaysia Holdings Bhd’s historical PE ratios.

We like Mynews for its franchise opportunities arising from the full autonomy of its myNews.com brand name; and growth potential from its food processing centre (FPC), allowing the introduction of ready-to-eat (RTE) and bakery products. Key risks are restrictions on the supply of foreign labour, making up about 32% of Mynews’ workers; and a delay in its FPC’s completion.

Mynews’ revenue outlook is positive. We have forecast Mynews’ top line to grow 20% in FY19F and 20% in FY20F, underpinned by additions of 85 stores, a higher average spending per customer and contribution from RTE products.

Mynews’ revenue yield or average spending per person is expected to improve 5% in FY19F and 9% in FY20F, partly driven by the Maru Kafe and its FPC products’ roll-out. The Maru Kafe is expected to be installed within 150 stores in FY19F versus 60 stores in FY18.

Also, although the exclusive contract between Philip Morris and Mynews for the sale of Heets, a “heat not burn” smokeless cigarette device, has ended, we believe the product would still attract customers and improve sales.

We forecast Mynews’ earnings before interest, taxes, depreciation and amortisation margin to improve from 10% in FY18 to 11% in FY19F and 12% in FY20F, supported by sales of RTE products and Maru Kafe’s offerings.

RTE products’ gross margin is estimated to be more than triple that of non-food products. Currently, the RTE segment accounts for 14% of Mynews’ revenue. We reckoned the RTE segment’s contribution to Mynews’ revenue would increase to 17% in FY19F and 22% in FY20F.

Mynews is expected to roll out RTE products in the second half of FY19 when the RM63 million FPC in Kota Damansara, Selangor, is completed by May 2019. Currently, the FPC is 80% completed. — AmInvestment Bank, April 8