The convenience retail chain store operator’s recent expansion plan is among factors expected to contribute to its growth 

MYNEWS Holdings Bhd’s first quarter (1Q23) results missed consensus expectations due to higher-than-expected operational expenditure (opex) and slower-than-expected traction in the operations of its South Korean convenience store brand, CU. 

The convenience retail chain store operator’s net loss more than halved to RM3.21 million for 1Q ended Jan 31, 2023, from RM7.86 million a year earlier, while revenue rose 32.03% to RM184.1 million versus RM139.4 million previously. 

The group also operates WHSmith stores in Malaysia, as a joint venture partner with UK’s WH Smith Travel Ltd. 

However, despite this setback, analysts remain optimistic about the company’s performance in the second half of the year (2H23). 

According to several research reports, MyNews is expected to bounce back from the loss and register a positive growth trajectory in the following quarters of the financial year. 

Analysts cite several factors that are expected to contribute to this growth, including the company’s recent expansion plan. 

“We remain positive on MyNews and expect improvements for CU ahead, as management moderates the pace of expansion (targeting 80-100 stores in financial year 2023 [FY23]), now that the franchise has reached a sizeable scale,” RHB Investment Bank Bhd (RHB Research) analyst Soong Wei Siang said in a recent note. 

He noted that brand equity is being proactively established via product launches and promotional activities, which should allow MyNews to capture the proliferating demand for convenience store dining. 

Notwithstanding the slow start to the year, Soong expects improvements ahead for MyNews, given the gradual establishment of CU’s brand equity. 

This, he mentioned, is on the back of various new product rollouts since the arrival of new labour supply to the food processing centre (FPC), intensifying marketing and promotional activities now that the CU franchise has reached a sizeable scale in store network of 131 stores, and lastly, the rationalisation efforts by closing down about 100 underperforming stores in the past year or two. 

“Essentially, we foresee a sustainable rising trend of convenience store dining, considering the busy lifestyle and higher hygiene awareness among consumers. 

“As such, early movers like MyNews will be in a good position to capture the demand when the culture further proliferates, and a more refined business model is formulated to meet consumer preferences. 

“The recovery of air travel should also continue to lift the performance of WHSmith stores located at the international airports,” he said. 

RHB Research maintained its ‘Buy’ call on MyNews with a revised target price (TP) of 66 sen from 73 sen. 

MyNews’ disappointing start with higher-than-expected losses in 1Q23 led to CGS-CIMB Research cutting its FY23-FY25F earnings per share forecasts by 20.2%-73.3% to account for lower operating margin assumptions on higher-than-expected operating costs from MyNews CU operations and FPC. 

In tandem with its earnings cut, the research house slashed its TP to 66 sen from 83 sen previously due to elevated operating costs, 

However, CGS-CIMB Securities Sdn Bhd (CGS-CIMB Research) said there were bright spots for MyNews such as the operator’s ability to post record quarterly sales and gross profit margin improvement. 

“We see a potential turnaround in 2H23F, premised on i) higher sales from increased store count and new product launches, ii) better product mix, iii) slower expansion plan and enhancing store efficiency to rein in operating costs, iv) easing of raw material costs and v) better wastage control,” it said. 

CGS-CIMB Research maintained its ‘Add’ call on MyNews as it is the only publicly-listed pure-play convenience store player in Malaysia and believes that it remains on track to achieve profitability in 2H23F once operating leverage kicks in. 

Meanwhile, Maybank Investment Bank Bhd downgraded MyNews to ‘Hold’ with a lower TP of 59 sen following the disappointing 1Q23 results. 

“MyNews continues to face a challenging operating environment in FY23F, with softer consumer spending and increasing business cost from labour and utilities potentially delaying any meaningful earnings turnaround in the near term,” it said. 

Maybank Investment lashed MyNews earnings estimates for FY23, FY24 and FY25 by 90%, 37% and 29%, respectively upon adjusting for lower same-store sales growth and lower gross profit margins. 

“As inflationary pressures continue to suppress consumers’ discretionary spending, retailers without a distinct product price advantage (e.g., convenience stores) may experience a larger adverse sales impact,” it said. 

This slowdown in consumer spending will also be further exacerbated by MyNews’ ongoing FPC losses until it manages to reach its break-even point with a utilisation rate of 75% (estimated in 4Q23). 

Maybank Investment said the slowdown in consumer spending will also be further exacerbated by MyNews’ ongoing FPC losses until it manages to reach its break-even point with a utilisation rate of 75%. — TMR 

• This article first appeared in The Malaysian Reserve weekly print edition