• Still BUY and MYR0.81 TP, 20% upside and 2% FY25F (Oct) yield. Post briefing, we reaffirm our positive stance on Mynews' prospects, with a robust 122% growth expected in FY25F. This will be underpinned by the anticipated turnaround of CU, alongside the solid performance of Mynews, food processing centre (FPC) and WHSmith. The current valuation of 18.2x FY25F P/E is attractive vs its pre-pandemic mean of 22.9x (Figure 2), and we think the market has yet to fully price in the company's recovery prospects.
• FY25F expansion plans. Management is focused on driving growth through expansion in FY25F, targeting 80-100 new outlets nationwide (60% Mynews, 40% CU). Meanwhile, the first Maru Coffee outlet, which opened in 4QFY24 is performing well, and it plans to open 20 more outlets in FY25F. GPM expansion (+2.6ppts to 37.6% in FY24) is expected to be sustainable following the consolidation of Mynews and CU management teams, which has enhanced bargaining power with suppliers, alongside effective wastage control. With increased volume from the outlet expansion, we forecast GPM to reach 38% in FY25F.
• Market share on rise. Mynews and CU in-store sales both improved (FY24 sales +10.1% YoY) driven by the fine-tuning of product offering and introduction of higher-quality fresh food items, which improved consumer traction. The company has steadily gained market share, increasing to 9-10% from 8% at the start of 2024 while CU is approaching a breakeven point as management focuses on optimising its product mix and reducing wastage. It also plans to launch the CU app in Jan 2025 and integrate it with the Mynews app to further enhance customer engagement.
• Improved performance across segments. We expect FPC's turnaround to sustain, driven by higher volume from outlet expansion. Management indicated that FPC's production has increased despite lower wastage, thanks to its meticulous inventory management and the selection of optimal store keeping units (SKUs). Meanwhile, WHSmith delivered its strongest performance in 4QFY24, and we anticipate continued improvement, supported by the rebound in tourist arrivals.
• Normalising ETR in FY25F. The effective tax rate (ETR) for 4QFY24 was lower at 18.9% due to adjustments to tax provisions finalised following the auditors' review. Meanwhile, FY24 ETR was elevated at 44.6%, mainly due to CU's losses. Looking ahead, we forecast FY25 ETR at 24%, in line with the pre-pandemic average during profitable years, as we expect CU to achieve a turnaround in FY25F.
• Forecasts and ratings. We make no changes to our earnings forecasts and DCF-derived TP of MYR0.81 (inclusive of a 2% ESG premium). Our TP implies 21.9x FY25F P/E, which is -0.5SD from its pre-pandemic P/E mean (Figure 2). Key risks: Delays in CU's turnaround, weaker-than-expected consumer sentiment, and higher-than-expected operating costs.

Source: RHB Research - 23 Dec 2024