• Keep BUY and MYR0.68 TP, 31% upside. Mynews’ 1QFY24 (Oct) results broadly met expectations in anticipation of further recovery ahead. We believe the worst is over, and expect improvement in CU's traction to continue paving the way for a turnaround for this business unit in FY24F. Additionally, the robust expansion of the Mynews brand is poised to further offset narrowing losses from other business units given its track record of resilient performance despite encountering various challenges.

• 1QFY24 results deemed within expectations. Core profit of MYR1.8m (+164.7% QoQ, 1QFY23: -MYR3.1m) met only 14-18% of our and consensus forecasts but we anticipate stronger earnings ahead on the improvement in all business units. Note that we adjusted for property, plant & equipment (PPE) written off and loss on disposal of PPE amounting to MYR0.5m to arrive at the core profit.

• Results review. YoY, 1QFY24 revenue rose 6.2% to MYR195.5m, thanks to improvements in overall in-store sales, despite minimal net store openings (+1 to a total of 597 stores). 1QFY24 GPM expanded 3ppts to 36.8%, thanks to improvement in sales mix and the higher margin of CU business. QoQ, 1QFY24 sales rose 5% due to increased business volume during year-end festivities. Meanwhile, food processing centre (FPC) losses narrowed to nearly breakeven levels at -MYR0.2m due to an improved utilisation rate. Consequently, 1QFY24 core earnings rose 164.7% QoQ to MYR1.8m.

• Outlook. Mynews will ramp up its outlet expansions, targeting to open >100 new stores (70% Mynews, 30% CU) in FY24. The focus on expanding the Mynews brand will be the key driver for sustainable profitability, aiming to offset losses from other units given its consistent track record of strong and stable performance. We believe the expansion will be further aided by the new shareholder providing valuable insight and suggestions on the business. Meanwhile, CU is adopting a more prudent approach in marketing investments and optimising maintenance expenses to downsize losses while fine tuning its offerings to boost sales. On the other hand, FPC's capacity utilisation and sales are anticipated to improve, driven by increased retail sales volume alongside the opening of new stores.

• Forecasts and ratings. Post results, we make no changes to our earnings forecasts and DCF-derived TP of MYR0.68 (inclusive of 2% ESG premium) as results were in line. Our TP implies 31.2x CY24F P/E, which is +1SD from its 5-year mean in view of its earnings turnaround prospects.

• Key risks: Delays in CU’s turnaround and weaker-than-expected consumer sentiment.

Source: RHB Research - 26 Mar 2024