KUALA LUMPUR: CIMB Equities Research is keeping its earnings forecasts, Hold call and end-2019F target price of RM1.50 for Mynews Holdings Bhd, formerly Bison Holdings Bhd.
It said on Tuesday its target price was based on an unchanged 50% weightage to price-to-earnings (P/E) of 24 times and 50% weightage to mean price-to-earnings growth (PEG) of one time.
“Even though we are positive on the group’s long-term earnings potential from its recent tie-up with Japanese partners for the construction of its food facility, we think its current valuation fairly reflects its growth prospects.
“Key upside risks to our call include higher-than-expected sales of higher-margin products (i.e. RTE food and bakery products) and faster store expansion, while key downside risks include intensifying competition in the convenience store space,” it said.
CIMB Research pointed out Mynews’s share price goes ex-bonus issue on Tuesday following the issuance of 341.1 million new bonus shares, bringing the group’s adjusted share base to 682.2 million shares.
“Our ex-bonus target price is adjusted to RM1.50. While we think that this exercise may lift liquidity and trading sentiment in the near-term, it does not essentially change the group’s underlying fundamentals,” it said.
The research house said Mynews’ earnings growth remains intact, further propelled by new store openings and the profitability boost from higher-margin products.
For FY18F, management said the group will increase its store expansion target to 90 stores per annum and it will continue to focus on lifting margins through the development of its fresh food product segment (which usually fetch higher gross profit margins of 45%-50%).
To recap, the group had earlier agreed to partner Gourmet Kineya Co Ltd (GK) and MRA Bakery SB (MRAB) for the development of its ready-to-eat (RTE) and bakery products, respectively.
The food preparation and packaging plant will cost the group RM35.7mil and is targeted to be completed by end-2018. This should also improve Mynews’ economies of scale and thus, help grow its fresh food segment.
“We also understand that the group’s sub-distribution centre (DC) in Johor Bahru has completed its extension works and is ready for operations pending the final approval by the relevant authorities,” it said.
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