RHB Research has maintained buy call on Mynews with a target price of 75 sen, 21% upside as it remains upbeat on the company’s growth.
“Mynews’ earnings for the third quarter of financial year ending Oct 31, 2020 (3QFY20) missed our expectations on slower-than expected footfall recovery.
“However, in our view, the worst is over. Mynews has gradually reopened some of its outlets, and footfall should recover following the resumption of its business activities in stages,” said analyst Muhammad Afif Zulkaplly.
“We believe investors should look beyond near-term earnings weakness, as the beauty of Mynews lies in its business scalability and entrepreneurial management team.”
He noted that Mynews’ RM5.6 mil core net loss in 3QFY20 and RM3.3 mil core net loss for the nine months of financial year ending Oct 31, 2020 (9MFY20) were below RHB Research’s consensus expectations, mainly on lower footfall during the Movement Control Order period.
Mynews had to temporarily close some of its stores and halt production at its food processing centre for six weeks, from May 1 to June 14, due to sales unpredictability and to avoid wastage.
“We notice that Mynews had a net store reduction of eight outlets compared to the previous quarter. Post results, we revise our financial year ending Oct 31, 2020 to Oct 31, 2022 earnings forecasts to RM7 mil net loss, RM19 mil net profit, and RM27 mil net profit respectively (from RM8 mil, RM25 mil and RM32 mil) after imputing lower store openings and SSSG projections,” added Muhammad Arif.
Mynews said it has been progressively reopening its outlets, with only about 5% of its outlets remain temporarily closed due to low foot traffic compared to about 10% a few months ago. This is a sign of recovery.
However, it had reduced its new outlet opening target to about 50-60 stores from 100 stores previously. The company is also exploring the opening of a bigger format store, myNEWS Supervalue, which will carry wider product offerings.
“As more than just a grab-and-go convenience store, we believe the new format store would target consumers who are less inclined to travel too far, or go to crowded spaces like malls, for basic household necessities and food.”
At this initial phase, the new format stores will be opened in Alor Setar and Melaka.
According to Muhammad Afif, essentially, Mynews’ earnings weakness over the past few quarters have not altered RHB Research’s positive stance on the company, as it believes Mynews’ attractiveness and investment merits lie in the scalability of business and entrepreneurial management team.
“Earnings growth should continue to be underpinned by outlet expansions, which we expect will resume progressively as business uncertainties are eliminated following the broad containment of Covid-19.
“Earnings growth momentum should also be supported by narrowing losses from the manufacturing unit in forecast for financial year ending Oct 31, 2021 and a breakeven in forecast for financial year ending Oct 31, 2022.”
As at 10.26am today, Mynews share price stood at 62 sen with a market capitalisation of 419.52 mil. – Sept 30, 2022
