Mynews: FY23 Outlook Improving. Further Improvement Needed
We believe that consumers will adopt a more cautious stance in spending throughout FY23 as inflationary pressures take a heavier toll on overall household income after FY22’s revenge spending - Maybank.
Mynews Holdings Bhd or MNHB's 1QFY23 sales are expected to rise due to festive season. Expansion of CU stores to slow down, focusing on reducing wastage. Gradual earnings recovery expected, while Maybank is maintaining their BUY with TP of MYR 0.80.
MNHB aims to reduce environmental impact by replacing plastic bags. Employs 2,112 workers, with 17% foreign. Board comprises of 6 directors, with only 1 woman (17% representation).
CEO's package was MYR 0.8m, senior management's not disclosed. Audited by Grant Thornton since 2016, no audit committee member previously a key audit partner. 2018 property transaction with non-independent director's son. Recurring related party transactions involving food manufacturing.
Gradual earnings recovery expected
"Our earnings estimates are unchanged. Although FY23 earnings are expected to remain in the black, earnings recovery to pre-pandemic levels will be gradual. We believe that consumers will adopt a more cautious stance in spending throughout FY23 as inflationary pressures take a heavier toll on overall household income after FY22’s bout of revenge spending," says Maybank.
Risks to Consider
- Competition: MNHB faces intense competition in the retail industry and may struggle to keep pace with competitors in terms of store offerings and pricing.
- Dependence on a few key suppliers: MNHB relies heavily on a small group of suppliers for food products, and any disruptions in their supply chain could negatively impact the company's sales and profitability.
- Adverse economic conditions: MNHB operates in a rapidly changing economic environment, and a downturn in the economy could negatively impact consumer spending and thus, MNHB's sales and profitability.
- Dependence on consumer spending: MNHB's sales and profitability are heavily dependent on consumer spending, and any fluctuations in consumer behavior could have a significant impact on the company's financial performance.
- Environmental concerns: MNHB's operations generate waste, including plastic waste, and the company may face increasing regulatory pressure to reduce its environmental impact. MNHB's efforts to switch to biodegradable plastics could also be costly and time-consuming.
- Workforce shortage: MNHB is currently facing a shortage of workers, which could impede its ability to fully operate its retail stores and food processing center. Hiring additional workers could be difficult and could increase MNHB's operating costs.
- Unfavorable business and market conditions: MNHB operates in a rapidly changing business and market environment, and unfavorable conditions, such as changes in consumer preferences or technological advancements, could impact the company's sales and profitability.
- Reliance on key management: MNHB's performance is heavily dependent on the skills and expertise of its management team, and the departure of key personnel could have a negative impact on the company's financial performance.
- Corporate governance issues: MNHB's Board of Directors is comprised of three executive directors who have indirect interests in the company through the group's major shareholder, and only one woman on the Board. Additionally, MNHB's CEO's remuneration package was significant despite the company's pre-tax loss in 2021.
- Related party transactions: MNHB has engaged in related party transactions, including the disposal of property to the sons of a non-independent non-executive director, which could raise concerns about potential conflicts of interest.
Investors should be aware of these risk factors when considering an investment in MNHB. The company's ability to overcome these risks and perform well will be crucial to its success.
However, the outlook for MNHB remains positive, and the company is expected to gradually recover its pre-pandemic earnings levels. The analysts maintain their "Buy" recommendation with a target price of MYR 0.80, says Maybank.