KUALA LUMPUR: MyNews Holdings Bhd's plans to open at least 90 new outlets in FY19 may limit earnings margin growth due to higher staff and rental costs and start-up costs.
In its outlook, Kenanga research said given the stiff competition and starurated market in the modern convenience store space, it maintained its underperform call with an unchanged target price of RM1.25.
In its recent earnings announcement, MyNews' 1Q19 core PATAMI came in within expectations, growing 30% year-on-year.
Pre-tax profit contracted 0.5ppt to 8.3% from 8.85% in 1Q18 despite 37% stronger sales growth due to higher operating expenses and contraction in gross profit margin by 0.8ppt to 36.8% from 37.6% in 1Q18.
"The higher operating expenses were in tandem with the opening of 73 (net) new outlets since 1Q18 to 439 stores as well as higher staff costs, rental expenses, and expenses incurred for the bigger Head Office premises (at Taman Sains, Kota Damansara) and the new Johor Bharu Distribution Centre, while the contraction on GP margin was due to unfavourable merchandise mix," it said.
Kenanga added that the group's effective tax rate of 20.7% is lower than the Malaysian statutory tax rate because its subsidiary DKE Technology Sdn Bhd is a MSC-status company that enjoyes certain tax incentives.
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