ALLIANCEDBS Research has downgraded its call on Mynews Holdings Bhd to hold with a lower target price (TP) of 70 sen due to the challenging near-term outlook that would cap the stock’s upside potential.
“Post earnings revisions, we have derived a TP of 70 sen for the group, pegged to 23x forward 12 months price-to-earnings (PE), which is close to -2 standard deviation (SD) below its historical mean,” the research house said in a note on March 23.
It also cut Mynews earnings estimates by 58%/24% for FY20-21.
“After taking into account the negative factors, we cut our earnings estimates mainly to account for the combined impact of lowering our revenue assumption for FY20/21 after reducing the number of new outlets to 80/90 for FY20/21 from 100/90 previously and lowering our sales per store assumptions.
“We also lowered our gross profit margin assumptions for FY20/21 to 35.7%/36.1% as compared to 37.7%/37.7% previously,” it said.
AllianceDBS has also raised its manufacturing losses assumptions of Mynews food production centre (FPC) to less than RM12 mil/RM4 mil from RM5 mil previously, inputting higher operating expenses assumptions and increasing effective tax rate assumptions to 48%/30% as the group could not claim group relief for its manufacturing losses from FPC for FY20/FY21.
“Its uninspiring 1QFY20 earnings illustrate the increasingly competitive operating environment for the group and its operating expenses could continue to run high if the group does not implement cost control measures.
“With the adverse impact of the Covid-19 pandemic setting in and weakened consumer sentiment in the upcoming quarters, we expect its near-term prospects to be increasingly challenging. As such, we are turning more cautious on the group’s near-term earnings outlook,” the research house said,
It added that the key risks to its recommendation include delay in the company’s store expansion plan due to its inability to secure outlets with high traffic locations and weaker-than-expected consumer sentiment.
However, AmInvest Bank Research has maintained its buy call on Mynews with a lower fair value (FV) of 83 sen from RM1.16 previously.
“Our valuation is pegged to a PE of 21x FY21 earnings per share (EPS). We have recently changed our PE multiple to reflect the group’s lower one-year average forward PE resulting from the Covid-19 pandemic,” said the research house.
It has also cut its earnings forecasts for FY20F, FY21F and FY22F by 30%, 31% and 27% respectively.
“This is to account for lower margins as we assume fewer store openings, higher FPC related costs and lower average spend due to Covid-19.
“Mynews’ 1QFY20 net profit of RM4.4 mil (-47% yoy; +37% qoq) was below both our and street’s expectations, accounting for around 15% of full-year earnings estimates,” it said.
AmInvest expected the group to reduce the production volume of its FPC in 1QFY20 to minimise wastage during the low-traffic season. “However now, we expect the group’s performance to continue to be poor in 2QFY20 due to Covid-19.
“Instead we expect reduced footfall in the outlets and production volume to remain slow. We expect the recovery in earnings to come from 4QFY20F onwards, assuming Covid-19 is contained within 1H20,” said the research house. — March 23, 2020
