Mynews Holdings Bhd
(Jan 13, 93.5 sen)
Maintain buy with an unchanged target price (TP) of RM1.35: Mynews Holdings Bhd will focus on growing its customer reach and driving demand in the ready-to-eat (RTE) segment in the near term through higher store openings, while investing in the marketing of Maru Kafe and RTE products to lift overall sales.
Our earnings forecasts are unchanged. At 21.1 times estimated financial year ending Oct 31, 2020 (FY20E) price-earnings ratio (PER), Mynews currently trades at a 33% discount to its mean PER of 31.6 times.
We reiterate our “buy” call and TP of RM1.35 — 28 times calendar year ending Dec 31, 2020 PER; the consumer sector’s peer average — with a FY19 to FY22E earnings per share compounded annual growth rate of 19%.
Excluding WHSmith (15 stores) and franchise stores (six stores), Mynews had a total of 513 Mynews stores as at end-FY19 (versus FY18’s 436 stores; an increase of 77 stores year-on-year), with an opening target of about 100 additional stores in FY20. In our view, new store locations must be more strategic to capture higher demand for fresh food.
Based on our store analysis, about 50% of Mynews stores are located in malls where demand for convenience store fresh food is lower given consumers’ preference for other food and beverage options. A heavier presence in malls also limits its operational hours as only about 17% of Mynews stores are operating 24 hours per day.
Same-store sales growth for FY19 remained positive mainly due to higher sales from Maru Kafe and tobacco (IQOS) products. Take note that Mynews’ average ticket size has risen RM1 since Maru Kafe’s launch in the fourth quarter of 2018 (4Q18), to RM7.47 in 4Q19 and should continue to grow as Mynews targets to offer Maru Kafe and RTE products to an additional 100 stores in FY20.
We understand that Mynews’ food production centre (FPC) utilisation is currently at 30% and more needs to be done in advertising, marketing and promotional campaigns to drum up awareness of its RTE products.
As such, the management cited its FPC is likely to break even by 2021. Separately, the minimum wage hike to RM1,200 per month from Jan 1, 2020, from RM1,100 previously, will adversely impact Mynews by about RM1.2 million per annum. — Maybank IB Research, Jan 9