MYNEWS Holdings Bhd’s margin of profit after tax and minority interests (Patami) is expected to recover as it begins to achieve economies of scale.
The retail convenience chain’s Patami was dragged lower to RM3.2 mil (-43% yoy) in the fourth quarter ended Oct 31, 2019 while revenue was 27.9% higher yoy to RM139.8 mil. Higher revenue was underpinned by a higher number of stores.
Gross profit margin contracted to 34.5% from 36.6% due to wastages of the in-house-ready-to-eat (RTE) meals and bakery products on their initial rollout and Patami margin contracted to 2.3% from 5.1% due to the food processing centre (FPC) full quarter expenses, the marketing initiatives to drive awareness of its in-house food and beverage products such as Maru Bakes, ice cream, coffee and RTE meals.
“We revise our forecast FY20 Patami lower by 30% to RM28.5 mil from RM40 mil on the back of higher than expected initial start-up costs, Inter-Pacific Securities Sdn Bhd said in its Dec 20 note.
“We are downgrading our call to neutral by ascribing a target PER of 30.0x to Mynews’s FY20 earnings per share (EPS) of 4.2 sen, with a lower target price of RM1.25 from RM1.57,” the research house added.
Mynews’ revenue grew 35.0% yoy to RM528.5 mil in FY19 on the back of a higher number of outlets (+109 to 513 from 404 in FY18) and increase in sales from existing stores.
However, it said Mynews’ earnings “were below ours and consensus expectations (28% and 23% respectively) due to higher than expected initial commencement costs for the FPC.”
But the research house still favours Mynews’ fundamentals and entrepreneurial initiatives such as e-wallet and delivery services.
“We view the fall in the share price as an opportunity for investors to accumulate the shares at lower valuations,” it added.
Going forward, the management aims to open 80 stores in FY19 and bring wastage down to 10% from the 25%.
The research house said future growth prospects of the company hinge on the rollout of its higher store counts, increase in the number of Maru Kafe and FPCs while risk factors for earnings estimates are slower store openings or poor location of new stores, logistics teething issues and slower than expected consumer spending.
AmInvestment Bank Bhd pointed out that Mynews’ Patami margin fell 1.7 ppt to 5.1% in FY19 (6.8% in FY18).
It said Mynews was hit by a higher effective tax rate which rose 7.6 ppt to 26.9% as the group recognised under-provision of income tax and deferred tax.
“We estimate its tax rate to be circa 25% each in FY20F and FY21F. Excluding the food manufacturing segment, Mynews achieved a net profit of RM29.6 mil with a net margin of 5.6%. We expect gestation period to last around two years,” said AmInvest. – Dec 23, 2019
