• Still BUY and MYR0.81 TP, 21% upside and c.2% FY25F (Oct) yield. We attended Mynews’ post-results briefing and came away feeling upbeat about its prospects. We think the worst is over with the turnaround of CU by end- FY24F and Mynews’ progressive contribution of driving the recovery of the profit base to pre-pandemic levels. The current valuation of 16.7x FY25F P/E is attractive compared to its convenience store (CVS) peers, and we think the market has yet to price in the company’s recovery prospects.

• Driving operational synergies. CU's losses narrowed in 2QFY24 (Figure 1) from better wastage control and consolidating Mynews’ and CU’s management, enhancing bargaining power and product assortment. It also plans to integrate the Mynews App with CU and consolidate the customer relationship management or CRM systems to improve consumer engagement and operational efficiency. Management sees opportunities on the East Coast and plans to expand CU's presence there due to lower operating costs, with a long-term target of over 300 CU stores by 2028. Management's target to turnaround CU remains by the end of FY24F, which is in line with our forecast.

• Steady as it goes. Mynews has shown a robust performance, with PBT recovering to pre-pandemic levels (Figure 1), driven by the continuous fine- tuning of product offerings and introduction of more quality fresh food items, following the securing of sufficient labour for its food processing centre (FPC). Fresh food now makes up 10% of Mynews’ sales, and management aims to increase this to 15% over time. While the expansion was slow in 1H, it plans to ramp up in 2H, aiming to open 100 stores in FY24F with a focus on the Mynews brand. This should further enhance bargaining power with suppliers due to economies of scale and improve FPC’s utilisation rate from the current breakeven level of 70%. As of 2QFY24, Mynews operates 34 SuperValue stores and plans to gradually convert some Mynews outlets into SuperValue to meet the growing demand for mini-marts. In addition, the first Maru Coffee outlet is scheduled to open in Sep 2024 to capitalise on the popularity of its coffee and fresh food products.

• Forecasts and ratings. Post briefing, we make no changes to our earnings forecasts and DCF-derived TP to MYR0.81 (inclusive of a 2% ESG premium). Our TP implies 20.2x FY25F P/E, which is -1SD from its pre-pandemic P/E mean (Figure 4). The current valuation of 16.7x is attractive for a CVS, as CVS typically commands a valuation premium (Figure 2) over traditional retailers due to aggressive outlet expansion capabilities and scalable business models.

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

Source: RHB Research - 25 Jun 2024