PETALING JAYA: MyNews Holding Bhd is scaling down its expansion plan for financial year 2023 (FY23) due to rising competition in the convenience stores space.
The company planned to have only 50 new stores instead of the original proposal of 80 as it aimed to focus on product quality and expanding its stock-keeping units, according to Kenanga Research.
MyNews also expects its second quarter ending April 30, 2023 (2Q23) to be slower compared with 1Q23, following the current fasting month of Ramadan as its convenience stores primarily caters to daytime commuters and office crowds.
As for its food processing centre (FPC), Kenanga Research said it does not expect it to turn around soon due to sustained high raw material, labour and utility costs.
“We now project its utilisation to only rise from an estimated 60% to 70% over the near term as we have yet to see any significant jump in its productivity after the recent arrival of foreign workers,” Kenanga Research added.
It expects MyNews to incur higher costs during the trial period following the promotion of its newly launched ready-to-eat food and average selling prices will be adjusted to compensate for the higher operational costs.
On a side note, MyNews is confident its food inventory wastage will continue to improve and will be capped at 15% to 20%, which had been achieved in line with the industry level in 4Q22.
Kenanga Research has taken a cautious outlook and cut its estimates for MyNews’ net profit for FY23 to FY24 by 26% and 17% respectively to reflect the scaled-back expansion plan and a slower 6% growth in same-store sales.
It lowered its target price for MyNews to 41 sen per share from 50 sen previously and retained its “underperform” call on the counter.
Meanwhile, CGS-CIMB Research has a more optimistic outlook on MyNews based on a potential turnaround in the second half of FY23.
“Despite higher-than-expected losses in the 1Q23 due to elevated operating costs, there were bright spots such as its ability to post record quarterly sales and gross profit (GP) margin improvement,” it said.
A higher revenue of RM181.1mil was achieved by MyNews in 1Q23 as well as a better GP margin of 33.8%.
The higher margins were due to better product mix with a larger contribution from fresh food and beverage products, as a result of its food-centric CU store growth, while increased store count and longer working hours had driven sales higher.
When combined with lower material costs and better waste management, they could contribute to MyNews’ turnaround, said CGS-CIMB Research.
It reduced its estimates for MyNews from FY23 to FY25 by 20.2% to 73.3% to account for lower operating margin assumptions on higher-than-expected operating expenses from its CU operations and FPC. CGS CIMB Research has an “add” call on MyNews with a lower TP of 66 sen a share due to cost and margin pressures.
