MNHB: Convenience Retailer Surpasses Earnings Expectations Amid Strong Operational Turnaround

Convenience retailer has reported robust financial performance for its first nine months of FY25 (9MFY25), with core profits significantly exceeding both analyst and consensus expectations. The impressive results underscore a successful operational turnaround, primarily driven by enhanced cost efficiencies and an improved business mix across its various brands.

Performance Review

For 9MFY25, the company recorded a core profit of MYR13.6 million, marking a substantial 70.2% year-on-year increase. This figure met 70% of the investment bank’s full-year estimate and surpassed consensus expectations by achieving 81% of their forecast. The third quarter of FY25 (3QFY25) alone saw core profit surge by an impressive 120% quarter-on-quarter to MYR6.6 million, signalling a return to pre-pandemic profitability levels. This strong performance was supported by a 9% year-on-year revenue growth for 9MFY25, reaching MYR649.4 million.

Key Operational Drivers

The notable profit growth is attributed to several key operational improvements. The company benefited from an improved product mix, particularly within its CU brand, coupled with more effective wastage control. The higher contribution from CU, which commands better margins, and the strong performance of its food processing centre (FPC), which reported a PBT of MYR1.2 million, were significant contributors. Additionally, a lower effective tax rate of 20.7%, facilitated by the utilisation of CU/FPC’s prior-year tax losses, further bolstered the bottom line. Gross profit margin for 9MFY25 improved by 0.9 percentage points year-on-year to 38.3%.

Challenges and Resilience

While the company navigated challenges such as seasonally softer sales during Ramadan in 2QFY25 and faced higher rental expenses due to sales & service tax (SST) expansion, these were largely mitigated by the robust operational improvements and strategic expansion, including the opening of 53 new stores, bringing the total to 679 outlets.

Future Outlook

Looking ahead, the outlook remains positive. The CU brand is projected to achieve profitability and contribute significantly to earnings in FY26, underpinned by tighter wastage control and a refined product assortment. The company is expected to maintain its solid and stable performance, with management prioritising the expansion of its already profitable brands. The Supervalue brand is also poised to benefit from increased customer traffic and spending through the Basic Rahmah Assistance (SARA) redemption programme. Furthermore, the upcoming Visit Malaysia Year 2026 is anticipated to serve as a catalyst, especially for outlets located in tourist-heavy areas. These factors are expected to drive higher sales volumes, enhance bargaining power with suppliers, expand gross profit margins, and improve FPC utilisation.

Investment Recommendation

The investment bank has maintained its “BUY” recommendation for the company, affirming its confidence in the ongoing turnaround and future growth prospects. Its target price implies a significant upside, supported by a valuation close to its pre-pandemic P/E mean. Key risks highlighted include a potential reversion of CU to losses, weaker-than-expected consumer sentiment, and higher-than-expected operating costs.