• Keep BUY and MYR0.81 TP, 18% upside and 2% FY25 (Oct) yield. FY24 results met expectations with strong sales growth and robust GPM expansion. We expect the turnaround to sustain thanks to the consistent performance at Mynews stores, reduced losses at CU, successful turnaround of the food processing centre (FPC), and solid contribution from WH Smith outlets. Mynews currently trades at an attractive 18.6x FY25F P/E, below its pre-pandemic mean of 22.9x (Figure 2) supported by sustainable earnings recovery.
• Within our, but ahead of consensus estimates. FY24 core profit of MYR12.5m (FY23: -MYR9.9m) met 99% and 128% of our and consensus forecasts. This marks the fifth consecutive profitable quarter and continued improvement.
• Results review. YoY, FY24 revenue grew 10.1% to MYR804.2m, driven by an increase in store count (from 591 to 620) and stronger in-store sales supported by an improved product mix. FY24 GPM expanded by 2.5ppts to 37.6%, benefiting from enhanced bargaining power with suppliers following the consolidation of the Mynews and CU management teams, as well as improved wastage control. Consequently, FY24 ended with a core profit of MYR12.5m, marking a significant turnaround from the MYR9.9m loss recorded in FY23. QoQ, 4QFY24 sales rose marginally by 0.5% to MYR208.4m due to the absence of major festivals and lengthy holidays in both periods. Still, core profit increased by 23.7% to MYR4.5m, supported by GPM expansion of 1ppt, likely driven by year-end supplier rebates.
• Outlook. We expect 1QFY25F sales to improve with year-end festivities and school holidays, while year-end rebates from suppliers should enhance near-term profitability. Further ahead, the planned opening of 100 new outlets in FY25F (60% Mynews, 40% CU) is set to drive higher volume and improve the FPC's utilisation rate. GPM expansion should sustain, underpinned by the consolidation of Mynews and CU management teams and outlet growth, which will enhance bargaining power with suppliers, alongside effective wastage control. Additionally, the Maru Coffee outlet launched in 4QFY24 is performing well, catering to growing demand for its coffee and fresh food offerings. Meanwhile, rising tourist arrivals are anticipated to boost foot traffic at WH Smith locations in airports.
• Forecast and ratings. Post results, we make no changes to our FY25F-26F earnings while introducing FY27F earnings of MYR43m. We maintain our DCF-derived TP of MYR0.81 (inclusive of a 2% ESG premium), implying a 21.9x FY25F P/E, which is -0.5SD from its pre-pandemic P/E mean. Key risks: Delays in CU's turnaround, weaker-than-expected consumer sentiment and higher-than-expected operating costs.

Source: RHB Securities Research - 20 Dec 2024