• Keep BUY and MYR0.81 TP, 27% upside. We visited Maru Café’s first store yesterday during its grand opening to gauge public reception of this new outlet. While neutral on this venture due to muted near-term earnings impact, it opens a new avenue for Mynews’ long-term growth and allows it to capitalise on the growing demand for coffee and fresh food. Mynews currently trades at an attractive valuation of 15.9x FY25F (Oct), with the worst likely behind and supported by sustainable earnings recovery.

• Ground checks. We visited Maru Café’s first store at the Intercontinental Hotel Kuala Lumpur and saw a large crowd of hotel guests and office workers there. The café features a cozy, relaxed atmosphere, complemented by efficient service, quick order preparation, and a wide variety of fresh food offerings, with coffee made using a more hands-on process compared to Mynews outlets. Moving forward, management has identified five locations for expansion over the next 4-5 months, with some outlets planned to be located beside Mynews stores to enhance brand visibility. Given the low capex required and the cautious rollout approach to gauge market reception, we do not anticipate significant gestation losses from this venture.

• Competitive positioning. We understand Maru Café positions itself with competitive pricing in strategic locations, leveraging on the growing popularity of its coffee and fresh food offerings. With Maru Café's food produced by Mynews’ food processing centre (FPC), the planned opening of 100 new outlets in FY25 (60% Mynews, 40% CU) is expected to further boost the FPC's utilisation rate through higher volumes.

• CU turnaround on track. The consolidation of management teams for Mynews and CU has helped narrow CU's losses by leveraging their combined scale – resulting in stronger bargaining power with suppliers and boosting sales through an improved product assortment. Ongoing cost optimisation efforts have also contributed to reducing CU's losses. CU also plans to integrate its app by year-end, enabling targeted promotions for members, who tend to have higher ticket sizes. Additionally, it aims to expand to the East Coast to tap into an underserved market and benefit from lower operating costs. We expect CU to break even by FY24 and contribute to profit in FY25.

• Forecasts and ratings. We make no changes to our earnings forecasts and DCF-derived TP of MYR0.81 (inclusive of 2% ESG premium). Our TP implies 20.2x FY25F P/E, which is - 1SD from its pre-pandemic P/E mean (Figure 11).

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

Source: RHB Research - 1 Oct 2024