Friday 29 Mar 2024
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This article first appeared in The Edge Financial Daily on March 24, 2020

Mynews Holdings Bhd 
(March 23, 59 sen)
Maintain buy with a lower fair value of 83 sen:
Our earnings forecasts for Mynews Holdings Bhd for the financial year ending Oct 31, 2020 (FY20), FY21 and FY22 are cut by 30%, 31% and 27% respectively to account for lower margins as we assumed less store openings, higher food processing centre (FPC)-related costs and a lower average spend due to Covid-19.

Mynews’ net profit for the first quarter ended Jan 31, 2020 (1QFY20) of RM4.4 million or -47% year-on-year (y-o-y) and +37% quarter-on-quarter (q-o-q) was below our and the street’s expectations, accounting for around 15% of full-year earnings estimates. The variance was mainly due to higher costs from its FPC as well as outlet operating and logistics costs.

Mynews’ revenue for 1QFY20 grew 14% y-o-y to RM140.6 million on additional 96 outlets to 535 outlets from 439 in 1QFY19, and higher sales of its FPC’s ready-to-eat and bakery goods. However, the average spend per outlet dropped roughly 5% y-o-y in 1QFY20.

The higher revenue was not enough to compensate the group’s profit before tax margin contraction by 4.7 percentage points (ppts) to 3.6% in 1QFY20, versus 8.3% in 1QFY19, dragged mainly by a 32% hike in operating costs. This was attributed to higher outlet operating and logistics costs resulting from a business expansion. A higher depreciation expense from its FPC and a higher outlet count also hit the group.

However, Mynews’ performance improved slightly sequentially. Its earnings before interest and taxes margin grew 1.3ppts q-o-q to 4.8% in 1QFY20 despite a lower footfall during the year-end holidays and a festive 1QFY20.

The FPC was operating at around 50% capacity — its estimated break-even point is at 75% capacity utilisation — resulting in the manufacturing segment’s loss of RM2.7 million for 1QFY20.

We had expected Mynews to reduce its FPC’s production volume in 1QFY20 to minimise wastage during the low traffic season. However, we now expect the group’s performance to still be poor in 2QFY20 due to Covid-19. We also expect a reduced footfall at its outlets and the production volume to remain slow.

We expect a recovery in Mynews earnings from 4QFY20, assuming Covid-19 is contained within the first half of 2020. — AmInvestment Bank, March 23
 

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