Date: 25 September 2024
Broker: UOB Kay Hian
Company Overview
MyNews Holdings (MNHB MK) is the largest homegrown convenience store chain in Malaysia. The company has been on a path of recovery, although its valuations remain challenging. MyNews operates 606 stores as of 3QFY24 and continues to expand its footprint, albeit at a modest pace. The company also owns a food processing center (FPC), which broke even for the first time in 3QFY24.
Stock Performance
- Share Price: RM0.60
- Target Price: RM0.52
- Upside: -13.3%
- Market Cap: RM412.7 million (US$88.0 million)
- 52-week high/low: RM0.715/RM0.410
Major Shareholders
- D&D Consolidated: 57.4%
- Aberdeen: 5.1%
- Employees Provident Fund (EPF): 4.9%
3QFY24 Performance
In 3QFY24, MyNews Holdings recorded sequentially improved earnings, with a core profit of RM2.6 million, a 51.7% increase quarter-on-quarter. Total revenue rose to RM207.5 million, representing a 7.6% quarter-on-quarter growth and an 11.7% year-on-year increase. The improved performance was primarily driven by robust in-store sales, although store growth remained modest at 2.2%.
Food Processing Center (FPC) Breaks Even
One of the most significant achievements for MyNews in 3QFY24 was its FPC breaking even for the first time since its launch in 2019. This marks a pivotal milestone in the company’s recovery, as the FPC had previously been a drag on earnings. The center is now contributing to gross margin improvements, which reached 37.2% in 3QFY24, up by 1.8 percentage points year-on-year.
Revenue Growth Drivers
- Store Count: MyNews increased its store count to 606 in 3QFY24, up from 593 in the previous year.
- Revenue Per Store: Revenue per store increased by 9.3% year-on-year, driven by in-store sales.
- Top-Line Growth: Overall, the company reported an 11.7% year-on-year increase in revenue for 3QFY24.
Gross Margin and Profitability
MyNews’ gross margin for 3QFY24 improved to 37.2%, up by 1.8 percentage points year-on-year, despite a slight 0.7 percentage point decline quarter-on-quarter. This improvement was supported by accretive sales from its CU stores, contributing to better product mix and economies of scale.
Risks and Challenges
While MyNews has made strides in its recovery, several risks remain:
- Minimum Wage Hike: The National Wages Consultative Council is reviewing Malaysia’s minimum wage, which may be raised from the current level of RM1,500. MyNews’ labor-intensive operations could see up to a 14% impact on 2025 earnings for every RM100 increase in the minimum wage.
- EPF Account 3 Withdrawals: The moderation of EPF Account 3 withdrawals could lead to slower consumer spending growth in the coming quarters, potentially impacting MyNews’ performance.
- Valuation Concerns: Despite the ongoing recovery, MyNews’ current valuation remains high, prompting the broker to maintain a SELL rating.
Financial Outlook
- FY23 Net Profit: RM9 million
- FY24 Forecasted Revenue: RM833 million
- FY24 Forecasted EBITDA: RM92 million
- Net Profit Margin (FY24): 1.1%
- PE (FY24): 54.3x
- Dividend Yield (FY24): 0.8%
Valuation and Recommendation
UOB Kay Hian maintains a SELL recommendation on MyNews Holdings, with a target price of RM0.52. The company’s recent run-up in share price appears to have more than priced in the anticipated recovery, and current valuations are considered too rich. The target price is based on a P/E ratio of 20.5x, which is -0.5SD below its five-year mean.
Environmental, Social, and Governance (ESG) Highlights
- Renewable Energy: MyNews is adopting solar energy for its headquarters and food processing centers, helping reduce 546 tonnes of CO2 emissions.
- Diversity and Inclusion: 48% of MyNews’ workforce is female, demonstrating a commitment to gender diversity.
- Board Composition: 50% of the company’s board comprises Independent Non-Executive Directors, reflecting strong governance practices.
Revenue Drivers and Assumptions
- Store Count Growth: MyNews is expected to increase its store count by 30 annually, reaching 625 stores in FY24 and 655 stores in FY25.
- Revenue Per Store Growth: Revenue per store is projected to grow by 3.0% in FY24 and 2.0% in FY25.
Overall, MyNews continues its recovery, but the challenges of valuation, labor costs, and slowing consumer spending will need to be addressed to maintain positive momentum.
