Mynews’ earnings margin growth to be limited by higher operating expenses

KUALA LUMPUR: Mynews Holdings Bhd’s (Mynews) will continue to incur higher operating expenses, analysts project, thus limiting the group’s earnings margin growth.

According to the research arm of Kenanga Investment Bank Bhd (Kenanga Research), Mynews plans to open at least 90 new outlets in financial year 2019 (FY19), which is the same target as FY18 (total 439 outlets as of January 31, 2019).

“However, in tandem with the increasing number of stores, Mynews will continue to incur higher operating expenses, limiting their earnings margin growth,” Kenanga Research said in its results note on the group.

Mynews’ first quarter of 2019 (1Q19) core profit after tax and minority interest (PATAMI) of RM8.2 million had come in within the research arm’s expectations at 26 per cent and 25 per cent of its and consensus full-year earnings estimates.

Looking ahead, Kenanga Research expected earnings margin growth to be limited by higher staff and rental costs during this expansionary period and start-up costs from the commissioning of in-house foodprocessing facility.

The research arm noted that the in-house food-processing facility has been fully completed in January 2019, supported by the group’s joint venture (JV) companies, Mynews Kineya Sdn Bhd and Mynews Ryoyupan Sdn Bhd.

All in, Kenanga Research maintained ‘underperform’ on Mynews with an unchanged target price of RM1.25 per share, based on 27-fold FY19E earnings per share (EPS).

The research arm said that this was “in line with regional peers’ average price earnings ratio (PER), given the stiff competition and saturated market in the modern convenience stores space, directly related to the regional market trend”.