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Mynews’ ROE expected to improve on asset turnover

TheEdge Fri, Oct 04, 2019 11:22am - 1 month ago


Mynews Holdings Bhd
(Oct 3, RM1.35)
Maintain outperform with an unchanged target price (TP) of RM1.55:
Mynews Holdings Bhd’s food production centre (FPC) has been operating for four full months since the launch of ready-to-eat (RTE) commercial sales in June. Based on our back-of-the envelope calculation, we estimate a start-up operating loss at around RM1.5 million for its third quarter of financial year 2019 (3QFY19) results operating at 33% capacity. The management is re-strategising RTE sales to reduce wastage and raise sales volume.

Note that monthly RTE sales were steady at RM3 million with wastage having been reduced from 40% initially to 20% currently, and we expect to see a gradual improvement in its operating efficiencies in the upcoming quarters. If the FPC is able to reach its break-even level at about 75% capacity (with the timeline undisclosed), it could potentially account for close to RM80 million annually in sales with better asset turnover. On the other hand, during a 3QFY19 analysts’ briefing, the management disclosed that the one-off high effective tax rate in 3QFY19 (at 30.7% compared with 20.7% in 2QFY19, from under provision of tax last year) was due to un-claimable expenses relating to the FPC and it expects to register an average effective tax rate of about 22% for FY19.

Competitively priced and fresh (with a shelf life that ranges from one day to three) food offerings of a wide range that fit the local palate are the main reasons why we think Mynews’ venture into convenient RTE food stands a good chance of succeeding. This new product range and revamping stores to increase sales are keys to raising asset turnover and hence we are likely to see improvements in return on equity (ROE) going forward.

We maintain “outperform” with an unchanged TP of RM1.55 based on 27 times estimated FY20 earnings per share, at -1 standard deviation of its three-year historical mean price-earnings ratio (PER), also in line with its regional peers’ average PER. We like Mynews for its: i) double-digit earnings growth (about 20% versus 7-Eleven Malaysia Holdings Bhd’s [SEM] of about 7%); and ii) above-industry earnings margin (about 7% versus SEM’s of about 2%). Key risks to our call include lower–than-expected sales and higher than-expected operating expenses. — Kenanga Research, Oct 3








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