Investment Highlights

• We upgrade Mynews Holdings (Mynews) to BUY from HOLD with a higher fair value of RM0.65/share based on a FY24F P/BV of 2.0x, in line with the 5-year mean given the recovery in earnings prospects. Our neutral ESG rating of 3-star is unchanged.

• MyNews’ 1QFY24 net profit of RM1.3mil (+6% YoY) came above our expectation, accounting for 45% of our FY24 earnings but below consensus at only 14%. The variance was mainly due to improvement in gross margin of 36.8% compared to 33.8% in 1QFY23 on improvement in the FPC segment.

• Hence, we increase our FY24F net profit to RM5.9mil from RM2.9mil previously to account for a better gross margin assumption of 35% from 34% previously, driven by the improvement in food processing centre (FPC) segment. We believe that improvement in FPC was likely due to better inventory cost control and better economies of scale driven by improvement in CU business. For now, we maintain FY25F-FY26F assumptions.

• QoQ, 1QFY24 revenue rose by 5% to RM196mil driven by improvement in overall in-store sales and new store openings. Gross profit margin improved by 30bps to 36.8%, contributed by better sales mix and improvement in CU business, which drove up Mynews’ net profit by 34% QoQ to RM1.3mil.

• The food processing centre’s (FPC) net losses narrowed from RM1.8mil to RM0.2mil in 1QFY24 likely due to better economies of scale given the improvement in sales for Mynews and CU stores.

• Moving forward, we turn positive on Mynews’s earnings as we believe the worst is over with two consecutive quarters of profit. We believe that Mynews’s earnings growth is propelled by:
  
  (i) the opening of new stores and improving in-store sales with a better sales mix,
  
  (ii) FPC is likely to turn profitable with better economies of scale,
  
  (iii) better gross margin on better inventory control, and
  
  (iv) better product mix that skews towards higher margin products in CU stores.

• Mynews currently trades attractively at FY24F P/BV of 1.6x, vs its 5- year average of 2x.

Source: AmInvest Research - 26 Mar 2024