Kenanga maintains underperform on MyNews

KUALA LUMPUR: MyNews met expectations for 1H18 as it continued to incur higher operating expenses in tandem with the increasing number of stores, said Kenanga Research in its Thursday report.

The research house said the company's 1H18 net profit of RM13.2mil, up 4.8% on year, was within its and consensus expectations while its one sen dividend per share was declared for the quarter was expected.

"1H18 net profit increased by 5% to RM6.8m despite a surge in revenue (+19%) mainly due to the higher operating expenses (+28%) from higher staff and rental costs. The higher operating expenses were in tandem with the increase in the number of outlets to 385 stores compared to 325 stores in 1H17.

"Note that the Group’s effective tax rate of 20.6% (1H17:19.7%) is lower than the Malaysian statutory tax rate because one of its wholly-owned subsidiaries is a MSC status company which enjoys certain tax incentives."

Kenanga added that MyNews plans ot open about 90 new outlets in FY18, more than the 70 opened in FY17.

However, it expects earnings momentum to be subdued by the higher staff and rental costs during the expansion period as well as start-up costs from the commissioning of the in-house food-porocessing facility, expecte to be completed by end-CY18.

The research house maintained its underperform rating on the counter with an unchanged target price of RM1.24 based on 26x FY19E earnings per share.