KUALA LUMPUR: Mynews Holdings Bhd may hike prices across certain product categories given the minimum wage hike and rising input costs.

"While we take comfort in its ability to raise prices, it could come at the expense of sales volume going forward given intensifying competition and rising inflationary pressures," CGS-CIMB Research said in a note today.

Mynews currently has 463 stores,  including 15 Mynews Supervalue, and 14 WHSmith, with the expectation of opening another five in coming quarters.

Revenue from Mynews outlets has achieved 80–90 per cent of pre-pandemic levels, and WHSmith operations will likely break even in May 2022.

"That said, the labour shortage, rising building material prices, and fierce competition could weigh on Mynews, in our view," CGS-CIMB Research noted.

While Mynews remains steadfast in its goal to open 100 CU stores per year, with 96 CU outlets currently, and on track to meet its targeted 130 CU outlets at the end of end-FY22.

The company said some of its earlier CU stores had achieved profitability.

"We still expect its CU operations to remain loss-making until end-FY23 due to elevated operating costs, depreciation, and finance costs to persist in upcoming quarters due to its aggressive CU expansion plan," CGS-CIMB Research noted.

The research firm also noted that the persistent shortage of manpower delayed further Mynews' profitability moving forward.

Mynews shared that insufficient manpower is hampering its food processing centre's (FPC) utilisation rate given the lack of workers to ramp up production to support its expanding store network.

To note, the FPC utilisation rate is currently at 60 per cent, and the company maintains a breakeven target of 70 per cent by end-FY22. 

"To circumvent this issue, Mynews has outsourced certain food product categories to third-party suppliers as a short-term measure, which could affect food quality, in our view.

"Nonetheless, it disclosed that FPC's first half (1H) FY22 revenue has reached 120 per cent of FY21's total revenue due to higher fresh food contributions from its CU operations, though it remained in losses at RM4.5 million," CGS-CIMB Research noted.

Mynews expects 200 additional foreign workers on August 22 to partially ease labour shortages and support its store expansion.

While Mynews aims to gradually increase the number of stores (especially CU) operating with longer hours (e.g. 24 hours, in line with its competitors), the current labour shortage remains a major impediment to executing its plans.

"As a result, we believe this could be a drag on sales growth moving forward, "CGS-CIMB research said. 

   "We keep our FY22-24 estimates intact and reiterated Reduce with a target price of RM0.33.

"The discount is to account for intensifying competition in the CVS space, weaker business fundamentals, and higher net gearing profile (a risk to rising interest rates)," the research firm noted.