MAYBANK IB Research maintained its sell call on Mynews Holdings Bhd (MNHB) with a target price of 57 sen based on 21x CY21 PER, while also sustaining its earnings estimates as NMHB’s near-term earnings still depend on the sales recovery of existing Mynews stores.
In its third quarter ended Jul 31, 2020 (3Q20), MNHB’s revenue had a slight decline to RM110 mil from the previous year’s RM131.6 mil and suffered a net loss of -RM6.08 mil from 3Q19’s net profit of RM7.4 mil.
However, MNHB announced that it signed a licence agreement with BGF Retail Co Ltd in order to become the local master franchisee of a South Korean convenience store brand, CU.
The agreement will last for a 10-year period with a renewal option of an additional 10 years and this makes Malaysia as CU’s third international expansion after Mongolia and Vietnam.
“We believe that MNHB’s foray into South Korean CU stores could be long term positive on the group as it offers a fresh product offering and is in line with ever-changing consumer trends,” Maybank IB Research said in a note earlier today.
“Payback period is expected to be two to three years/store with its first store targeted to be opened in 1QCY21,” it added.
According to the research house, MNHB plans to open 30 to 50 CU stores within its first year with a long-term target of 500 stores in five years, centred around Klang Valley, within school/university districts and even residential areas.
Adding that CU’s product mix will mainly be skewed towards F&B products, Maybank IB Research said that CU’s fresh food will be manufactured at MNHB’s existing foof processing centre (FPC), contributing to improve its utilisation rate (3Q20 at 35%).
“We believe that execution is of paramount importance to avoid further cost leakages in the midst of an already challenging operating environment led by the pandemic,” it said.
Furthermore, MNHB has allocated a capex of about RM30 mil to RM40 mil over a two-year period in relation to its CU store expansion (including a one-off franchise fee).
On a per store basis, the capex is expected to amount to c.RM360,000 to RM405,000 for each store, which is c.10% below existing Mynews stores.
Additionally, it is believed that there could be potential conflict of interest between the Mynews and CU stores in relation to store openings, marketing offers and store locations.
To mitigate this, MNHB has set up separate teams responsible for operations of each store brand and new stores opened are unlikely to be within close proximity.
“Management also shares that certain existing Mynews stores might be converted to CU stores if its location is found to be more conducive to the CU brand,” it said, adding that there are still several risk factors to consider for its earnings estimates, price target and rating.
“Poor execution or inability to find suitable store locations could hinder new store openings and revenue growth. Additionally, slower consumption demand growth could result in falling same store sales growth. Higher operating expenses from higher minimum wage and higher rental could also adversely impact earnings,” it added. – Oct 14, 2020
