KUALA LUMPUR (Dec 20): RHB Investment Bank Bhd Research (RHB IB) has cut its forecast of financial year 2020 (FY20F) and FY21F earnings 26% and 24% for MyNews Holdings Bhd to impute a longer-than-expected gestational period of its bakery and ready-to-eat central kitchen.
In a note today, the research house said it maintained its 'Buy' call on the group at RM1.16 with a lower target price of RM1.45 (from RM1.70) due to the scalable growth potential, and said it introduces FY22F earnings at RM47 million.
RHB IB said MyNews yesterday reported a FY19 net profit of RM26.8 million (+1.2% year-on-year [y-o-y]), which is below house and consensus expectations, accounting for only 79% and 85% of the forecasts.
RHB IB said the earnings disappointment is mainly attributed to larger-than-expected losses from the group's manufacturing units, 51%-owned Mynews Ryoyupan Sdn Bhd and Mynews Kineya Sdn Bhd.
"We highlight underlying FY19 net profit growth would have been 10% excluding the losses from manufacturing.
"All in, MyNews has opened 77 new outlets in FY19, close to management's target of 80 stores, bringing the total number of outlets to 513 (+18% y-o-y)," it said.
Looking forward, the research house said it expects more intensive management focus on lifting the sales volume and utilisation rate of the manufacturing plant.
This includes fine-tuning product offerings to meet consumer demand and more aggressive marketing and introductory initiatives to improve consumer acceptance of fresh food products, it said.
Meanwhile, it also said the underlying convenience store business is likely to remain robust in churning growth, driven by outlet expansion and same-store sales growth.
"Essentially we reckon the strategy to go upstream is vital in complementing the store expansion to underpin sustainable growth over the long run.
"In our view, the scalability of the business is the key factor supporting the premium valuation commanded by convenience store operators — as such, investors should take a longer-term view on the stock unless there is a significant weakness in underlying business operations," it added.
At 11.23am, NyNews shares fell 5.17% or 6 sen to RM1.10, for a market capitalisation of RM750.37 million.