The turnaround has seen its share price rebound some 32% year-to-date and prompted some research houses to issue buy calls on the convenience store operator.
“Moving forward, we maintain our positive view on MyNews’ earnings trajectory on our conviction that the worst is over with three consecutive profitable quarters,” said AmInvestment Bank (AmInvest) in a research note today.
The research house maintained its “buy” call with a higher target price (TP) of 78 sen per share from 65 sen previously on the recovery in MyNews’ earnings prospects.
The group posted a net profit of RM1.73 million for its second quarter ended April 30, 2024 (Q2 FY2024) against a net loss of RM6.28 million a year ago on the back of higher share of profit from its joint venture company and improved profit margin.
For the first half (H1 FY2024), MyNews registered a net profit of RM3 million against a net loss of RM9.49 million in the corresponding period in FY2023, while revenue rose 8.37% to RM388.29 million from RM358.29 million.
Its shares rose as much as 7% or 4.5 sen to 69 sen today. The stock pared some of its gains to 68 sen at the mid-day trading break, valuing the company at RM510 million.
AmInvest noted that the profit turnaround in H1 FY2024 was mainly due to improving in-store sales in tandem with higher footfalls across its brand outlets.
It believes earnings growth will be propelled by opening of new stores and improving in-store sales, its central food processing centre turning profitable, higher gross margin, and better product mix that skews towards higher-margin products in its CU Korean convenience stores.
MyNews currently operates 622 outlets, comprising 471 MyNews outlets, 131 CU outlets, and 20 WHSmith outlets.
Losses at CU to narrow
Meanwhile, RHB Investment Bank said the consolidation of the CU and MyNews management teams has improved sales and gross profit margin through stronger bargaining power and an enhanced product assortment.
It added losses at the CU venture will narrow further and reach breakeven by the financial year ending October (FY2024), driving the recovery of the profit base to pre-pandemic levels.
“Mynews has demonstrated consistency and strong earnings delivery, and the focus on expanding this brand will be the key driver for sustainable profitability moving forward,” added RHB, which kept its “buy” call with a TP of 81 sen.
However, UOB Kay Hian has downgraded the counter to “sell” from “hold” with a TP of 52 sen. “The recent run-up in MyNews’ valuations appears to have more than priced-in MyNews’ anticipated recovery,” it said.
The research house also said the group faces a threat from rising minimum wage. “Every RM100 increase in minimum wage could potentially cut 2025 earnings by up to 14%,” it said.
It noted the company’s earnings are particularly sensitive given its small earnings base relative to the highly labour intensive nature of its operations. The minimum wage was last raised in May 2022.
MyNews was founded by its executive chairman Dang Tai Luk in 1996 and has since evolved from a single newsstand to one of the largest homegrown retail convenience store chains in Malaysia.
Last year, the company was in the news after JAG Capital Holdings Sdn Bhd, the private investment vehicle of plantation and commodities minister Johari Ghani, emerged with a 9.09% stake following a private placement by the group which raised about RM28 million.