By Stella Goh – As published in Inve$t Malaysia 10 April 2020 issue
Overview
Mynews Holdings Berhad (MYNEWS), formerly known as Bison Consolidated Berhad was founded by Dang Tai Luk in 2013. Since its inception in 1997, the company has evolved from a single traditional newsstand to being one of the largest homegrown convenience retail chain stores operator in Malaysia.
MYNEWS, headquartered in Petaling Jaya was listed on Main Market of Bursa Malaysia as Bison Consolidated Berhad on 29 March 2016. Its current name was adopted on 11 December 2017 in line with the company’s retail business “myNEWS” branding. It’s wholly owned subsidiaries include Mynews Retail Sdn Bhd, Eemerge Incorporated Sdn Bhd, Mynews Kukuh Sdn Bhd, Bison Foods Sdn Bhd, DKE Technology Sdn Bhd and Mynews Management Sdn Bhd. In 2019, it opened 97 new outlets and also obtained Halal Certification for its food production plant (FPC) in Kota Damansara.
Business Model
MYNEWS is engaged in conceptualization, development, expansion, management and operation of its convenience retail chain stores throughout Malaysia under its trade name myNEWS.com, newsplus, MAGBIT, THE FRONT PAGE as well as WHSmith, which is operated under their equal joint venture with WHSmith Travel, one of the UK’s leading retailers.
The WHSmith brand retails newspapers, books and convenience products within international airports in Malaysia. The company’s other stores are located throughout Malaysia and Sarawak offering a product mix comprising print media, food & beverage, grocery products and consumer services such as cashless payment, bill payment, mobile & game reloads, Touch N Go reload, SIM starter pack, send & return parcel, IQOS care-corner and myNEWS DASH as their e-commerce platform. It’s first flagship store opened on December 25, 1996.
Financial Review
Based on past 3 financial years’ revenue chart (above) its revenue grew year-on-year (y-o-y) from FY2017 (+24.08%), FY2018 (+17.72%) to FY2019 (+34.26%). On a CAGR basis, MYNEWS has grown 25.17% based on 3 years.
The increase in revenue was due to the higher retail sales of RM121.94 or 36.9% while the other operational income increased by RM10.20 million or 18.4% contributed by both existing and new outlets.
MYNEWS has recorded a RM36.451 million increase in gross profit, translating to a growth of 24.39% from RM149.437 million in FY2018 to RM185.888 million in FY2019. Based on 3 years CAGR, the company’s gross profit has grown 25.31%.
The increase in gross profit was due to MYNEWS rolling out its in-house Maru Kafe which offers over the counter food such as coffee, ice-cream and hot snacks. This was followed by the rolling out of more in-house produced ready-to-eat (RTE) meals and bakery products from its food production centre (FPC). Except for print media, all other product categories recorded double digit growth.
The Profit After Tax (PAT) for FY2019 was RM24.324 million, which is RM1.689 million or 6.49% lower compared to RM26.013 million in the previous year as the effective tax rate was relatively higher than last year. The tax expenses included a sum of RM0.76 million for tax underprovided in 2018. In addition MYNEWS could not enjoy any group tax relief for two loss making subsidiaries Mynews Kineya Sdn Bhd and Mynews Ryoyupan Sdn Bhd which operate the food production centre (FPC).
Cash Flow Statement
The net cash from operating activities has provided a positive cash flow of RM83.130 million in FY2019 as compared to RM9.540 million in FY2018 indicating that the company is healthy and has enough cash to use for business expansion.
The net cash from investing activities in FY2019 (-RM73.464 million) was mainly due to purchase of Property, Plant and Equipment (RM104.657 million), placement of funds in other investments (RM6 million) and placement of fixed deposits (RM0.113 million). The negative cash flow indicates that the firm is investing in its business for growth.
The net cash from financing activities in FY2019 (-RM19.048 million) was mainly due to payment of lease liabilities (RM30.544 million), dividend paid (RM6.822 million), repayment of bank borrowings (RM3.525 million) and interest paid (RM3.457 million).
Is the company able to pay back its liabilities?
Based on the liquidity ratio calculation, MYNEWS has a current ratio of 1.327 times in FY2019 indicating that the company does not face any liquidity issue as it is capable of paying back its liabilities (RM114.916 million) if any unforeseeable circumstances occur. MYNEWS is able to do so by using current assets such as inventories, contract assets, trade and other receivables, amount due from jointly controlled entity, tax recoverable, other investments, fixed deposits with licensed banks, cash and bank balances amounting to RM152.514 million.
Prospect and Challenges
MYNEWS launched its Japanese inspired ready-to-eat 130,000 sq ft food production centre (FPC) in Kota Damansara, in partnership with Ryoyi Baking Co Ltd and Gourmet Kineya Co Ltd with a total investment of RM100 million in the FPC. The Japanese-inspired food catered to Malaysian tastes ranging from sandwiches, onigiri, bento, fresh baked breads, hot and cold beverages, curry laksa, nasi lemak and others will be available in MYNEWS’s stores. The products currently being produced are sent to more than 300 MYNEWS’s outlets in Klang Valley. MYNEWS’s DASH online delivery services will also be provided to customers who wish to have their food and other daily needs delivered to their doorstep.
As at FY2019, MYNEWS had a total of 513 stores compared to 436 stores in FY2018 (an increase of 77 stores year-on-year), with an opening target of about 100 additional stores in 2020.
At the same time, the company will increase the number of MYNEWS outlets with Maru Kafe concept through the refurbishment of existing stores in addition to making it a standard for as many new stores as possible. Their product mix will continue to be improved with RTE food and beverages as the prime category of growth. MYNEWS will also continue to embrace technology and innovation in retail to improve the stores towards providing better shopping experience.
Rating System
Return on Equity (ROE) = Average
Revenue [3 years CAGR] = Good
Net Earnings [3 years CAGR] = Average
Basic Earnings per Share (EPS) [3 years CAGR] = Average
Interest Coverage = Good
Quality of Earnings = Average
Price Over 3 Years
Insight
Based on the calculation of Discounted Earnings Model, MYNEWS has an intrinsic value of RM1.939. The current share price of MYNEWS is RM0.84 which makes it an undervalued stock (as at 9 April 2020). MYNEWS has a beta of 1.036 (500days) indicating that the share price is more volatile than current market. Based on the computation of Compound Annual Growth Rate, MYNEWS has an expected market return of 0.74%.
In conclusion, even though the Profit After Tax (PAT) of MYNEWS has decreased in FY2019 due to higher of effective rate, MYNEWS still achieved a strong performance in FY2019 with the highest revenue and gross profit over the past 3 years. The company’s prospect remains bright as the focus on growing its customer reach and driving demand in the ready-to-eat (RTE) segment in near term through higher store openings, while investing in the marketing of Maru Kafe and RTE products to lift overall sales.
Disclaimers
The research, information and financial opinions expressed in this article are purely for information and educational purpose only. We do not make any recommendation for the intention of trading purposes nor is it an advice to trade. Although best efforts are made to ensure that all information is accurate and up to date, occasionally errors and misprints may occur which are unintentional. It would help if you did not rely upon the material and information. We will not be liable for any false, inaccurate, incomplete information and losses or damages suffered from your action. It would be best if you did your own research to make your personal investment decisions wisely or consult your investment advisor.