• U/G BUY from Neutral, new MYR0.68 TP from MYR0.54, 32% upside.FY23 (Oct) core earnings beat expectations on robust performances fromthe myNews.com (myNews) unit that offset narrowing CU losses.Essentially, we believe the worst is over and our +1SD target valuation ispremised on anticipation of a sustainable turnaround, driven by enhancedoperational efficiencies, strategic expansion, and emergence of a newmajor shareholder that leverages on the latter’s successful experience inconsumer retail to offer valuable insights for the business.

• Above expectations. Mynews’ posted a 4QFY23 core profit of MYR0.7m(4QFY22: -MYR0.7m, 3QFY23: -MYR1.5m), bringing FY23 core losses toMYR9.9m (FY22: -MYR17.2m). This exceeded our and Street’s estimateson stronger-than-expected margins, which was attributed to robustperformances from the myNews unit that offset narrowing losses from theCU wing. Note: We adjusted for PPE written off, loss on disposal of PPE,and investment properties disposal gains amounting to MYR0.8m to arriveat the core loss figure.

• Results review. YoY, FY23 revenue rose 15.7% to MYR730.2m, driven bythe contributions from new stores (+8 to 593 stores) and improvements inoverall in-store sales. FY23 GPMs expanded by 1.4ppts to 35% – attributedto a better product mix as a result of higher contributions from the CUsegment. QoQ, 4QFY23 sales rose marginally by 0.2%, in line with theabsence of major festivals and lengthy holidays in both periods.Consequently, the improvement in GPM on a better product mix and yearend rebates from suppliers led to a profitable 4QFY23. The food processingcentre’s losses narrowed to -MYR1.8m during this period on an increase inits utilisation rate.

• Outlook. 1QFY24F sales are set to pick up, boosted by better seasonalityon year-end festivities and the school holidays. The year-end rebates fromsuppliers, consistency in Mynews' performance, and improvements in CU’straction should also contribute to the group's sustained profitability in thenear term. Further ahead, a more significant earnings turnaround couldmaterialise with Mynews’ expansion strategy, which aims to open >100 newstores (70% myNews, 30% CU). According to management, the strongperformance of the myNews unit is poised to offset the losses from its otherbusinesses. This is on its versatile products offerings and store layouts thateffectively cater to diverse customer needs across various locations.Furthermore, efforts to enhance CU’s productivity and efficiency, coupledwith prudent measures in marketing and maintenance expenses, shouldresult in cost savings and drive a turnaround.

• Forecast and ratings. Given the earnings beat, we raise our FY24F-25Fearnings by 4% and 14% while introducing FY26F bottomline of MYR36m.Consequently, our DCF-derived TP is lifted to MYR0.68 (with a 2% ESGpremium), implying 31.3x CY24F P/E or +1SD from its mean. Key risks:Delays in CU’s turnaround and weaker-than-expected consumer sentiment.

Source: RHB Securities Research - 22 Dec 2023