Mynews Holdings Berhad (MNHB) maintains a positive outlook with its new venture, Maru Café, following a successful grand opening at the Intercontinental Hotel Kuala Lumpur. Despite a neutral stance regarding the immediate earnings impact, RHB Stock Broking House remains bullish, keeping a BUY recommendation and a target price of RM0.81, reflecting a potential upside of 26.6%. This price point is supported by an attractive valuation of 15.9 times the forecasted earnings for the fiscal year ending October 2025. This indicates that the worst may be behind the company and suggests a sustainable earnings recovery is underway.
The grand opening of Maru Café attracted a substantial crowd of hotel guests and office workers, demonstrating promising public reception. The café is designed with a cosy atmosphere, efficient service, and a diverse selection of fresh food offerings. The coffee is prepared through a more hands-on process compared to traditional Mynews outlets, adding to its appeal. Management has already identified five additional locations for expansion over the next four to five months, with plans to position some of these outlets adjacent to existing Mynews stores to enhance brand visibility. Given the low capital expenditure required and the cautious approach to the rollout, significant gestation losses from this venture are not anticipated.
In terms of competitive positioning, Maru Café is set to offer competitive pricing in strategic locations while capitalising on the growing demand for coffee and fresh food. Its offerings are produced by Mynews' food processing centre, which is expected to see a boost in utilisation with the planned opening of 100 new outlets in fiscal year 2025, comprising 60% Mynews and 40% CU. This expansion aims to enhance the company's presence in the market while meeting consumer demand.
Moreover, CU's turnaround strategy is reportedly on track. The consolidation of management teams between Mynews and CU has resulted in reduced losses for CU by leveraging their combined scale, thereby strengthening supplier bargaining power and enhancing product assortment. Cost optimisation efforts are also in place to mitigate losses further. CU plans to integrate its app by year-end, offering targeted promotions for members, who generally exhibit higher spending. Additionally, plans to expand into the East Coast market aim to tap into underserved demographics while benefiting from lower operational costs. Analysts predict CU will break even by fiscal year 2024 and start contributing positively to profits in fiscal year 2025.
Forecasts for Mynews remain unchanged, with a discounted cash flow-derived target price of RM0.81, which includes a 2% ESG premium. This target price implies a price-to-earnings ratio of 20.2 times for fiscal year 2025, which is one standard deviation below its pre-pandemic P/E mean, suggesting a potentially undervalued stock.