Kenanga cautious over MyNews' CU outlet roll-out

KUALA LUMPUR: Kenanga Investment Bank Research is cautious over MyNews Holdings Bhd's move to introduce consumer value store brand CU to Malaysia due to the likely cannibalisation between the outlets and the execution risks.

"Though management argues that CU’s distinct product offerings (i.e., own private label Heyroo and exclusive Korean products) and store location positioning would allow them to differentiate themselves from the existing players, we are nonetheless concerned over the possibility that the new CU outlets would overcrowd the already competitive consumer value store space and cross-cannibalise its existing MyNews brand.

"Furthermore, the execution risk for the expansion of a new brand still prevails, even more so during the current market uncertainty and on top of the group’s existing Maru Café expansion plans," it said.

However, the research house said the RTE products to be supplied to the new CU outlets will be produced by the group's halal-licensed food processing centre (FPC), which will help to drive up its utilisation rate from about 35% to its FY21 break-even target rate of 70%.

It aded that the group will tap into the growing popularity of K-culture through the CU outlets.

The outlets also sell a greater share of higher margin fresh food content, which will boost top and bottom lines after an anticipated gestation period of two to three years, it said.

Kenanga maintained its "underperform" recommendation on MyNews with an unchanged target price of 48 sen.

MyNews announced yesterday that it had signed a licence agreement with BGF Retail Co Ltd with the latter being the operator and owner of South Korea's leading convenience store brand CU.

The agreement will allow the group to operate and sub-franchise CU outlets in Malaysia for 10 years, with an option to extend for 10 years.

"We understand that the group will be utilising its current FPC to produce fresh food offerings for the CU outlets," said MyNews.

The group targets a roll out of 30 to 50 new CU stores in the first year with the first store expected to be ready by early 2021.

No fund-raising activities will be needed at this point as the earmarked capex of RM30mil to RM40mil for the first three years will be funded internally via the previous credit facilities secured for the FPC.
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