LSK and CUCKOO mattress collaboration


LSK Eric Lee

LATEX mattress manufacturer Lee Swee Kiat Group Bhd (LSK) seems to have come to life in recent weeks. Since late October, the stock has added 27 sen or almost 50% to its stock price.

On Thursday, CIMB Research upped its target price for the stock to RM1.60, indicating a significant 95% upside from its current price.

The research house said that LSK was driven by the defensive nature of its business, attractive valuation of 10.5 times price-earnings (PE) multiple for 2021, a net cash position of RM13.8mil and appealling dividend yields of 3.3% to 7.4%.

A good insight into changes going on at LSK came from its announcement this week of a collaboration with CUCKOO International (MAL) Sdn Bhd.

The deal marks a new sales channel for LSK’s business-to-customer (B2C) segment as well as the group’s entry into the rental-based business model.

LSK sells latex mattresses through its homegrown distribution chain of stores, namely, International Brands Gallery (IBG), Italhouse and Mattress Factory Outlet (MFO).

With the retail and factory direct business models in hand, the collaboration with CUCKOO International presents a new business model for LSK that will attract a larger pool of customers.

In addition, LSK is able to tap on CUCKOO International’s customer base of four million active household users, and 500 branches of Brandstores, Brandkiosks and Wonder Stores nationwide as of November 2020.

CUCKOO International retails home appliances under the South Korean brand CUCKOO and healthy home care services under the WonderKlean brand.

According to LSK managing director Datuk Eric Lee, the CUCKOO mattresses are slated to be launched by the end of the first quarter of 2021.

“This collaboration enables us to offer greater value to customers, with superior quality products at affordable prices, inclusive of mattress cleaning and maintenance services provided by CUCKOO International.

“CUCKOO International is renowned for its customer service, having achieved a customer satisfaction rating of 97.5%.

“We believe that we will be able to penetrate the market easily, given the low initial outlay, ” Lee tells StarBizWeek.

Through the collaboration, LSK is able to leverage on its economies of scale and offer competitive prices, being the largest latex mattress manufacturer in Malaysia.

The group has earmarked RM200,000 for the development of exclusive bedding products to be marketed under the CUCKOO brand.

Apart from that, LSK will bank on its existing distribution network to deliver the CUCKOO mattresses to customers, resulting in further savings.

Due to the nature of the collaboration, where both parties will co-create the CUCKOO mattresses and trade as a single entity, there will be no middle-man fees incurred in the final price of the product.

On the other hand, CUCKOO International will be responsible for marketing activities and payment collection.

The risk in payment collection is also reduced, thanks to CUCKOO International’s existing customer database and efficient payment collection team, says Lee.

While CUCKOO International may not be the first to market mattress rental services in Malaysia, its rental fees are expected to be. CUCKOO International is targeting to implement a rental structure of RM150 over three years. Customers can also opt to purchase the CUCKOO mattresses outright.

CUCKOO International aims to sell 80,000 mattresses over the next three years.

CGS-CIMB in a recent report highlighted that LSK is confident of achieving at least RM100mil in revenue in the financial year 2021 (FY21) until FY23, based on a revenue sharing ratio of 40:60 for LSK and CUCKOO International, respectively.

“This is based on a sales assumption of 80,000 mattresses in that three-year period, or 2,200 mattresses on a monthly basis, at an average of RM5,000 per mattress.

“Note that Coway is selling an average of 3,000 mattresses a month in Malaysia since launching its Prime series mattress in January this year.

“This is despite the impact of Covid-19 this year, which led to lower economic activity, ” the research house says.

CGS-CIMB is positive on the collaboration as it provides a new revenue stream for LSK and raises its FY21 to FY22 earnings per share for LSK by 8.8% to 42% as it inputs the contribution from this new business venture.

The research house assumes gross profits of RM6.3mil and RM13.5mil for LSK in FY21 and FY22, based on 11,200 and 20,800 mattresses sold in each year.

Lee adds that the collaboration with CUCKOO International is expected to increase LSK’s local market share of the mattress industry to 20% over the next three years, from the 10% to 15% market share that the group currently commands.

The CUCKOO mattresses will be CUCKOO International’s first product under the company’s new Healthy Living pillar.

According to CUCKOO International founder and CEO Hoe Kian Choon, mattress rental is a growing trend among consumers.

“In the US and Europe markets, the rental business model is common. It all boils down to usership versus ownership.

“Consumers do not really need to own a mattress, they just need to use it.

“By renting mattresses, customers have the flexibility to upgrade or change their mattresses at a minimal cost, and maintenance is hassle-free, ” says Hoe.

The CUCKOO brand of healthy appliances, which range from water and air purifiers to kitchenware, are sold on a rental or outright basis.

Hoe explains that an estimated 93% of CUCKOO International customers are renting CUCKOO products, while only 7% of its customers have purchased CUCKOO products outright.

He forecasts that the CUCKOO mattresses will see a 90% take-up for rental and 10% for outright purchases.

CUCKOO International was established in Malaysia back in 2014 and has registered a year-on-year sales growth of 122% and 109% in 2018 and 2019, respectively.

The company posted a revenue of RM910mil in 2019 and is on track to hit the RM1bil revenue mark this year.

CUCKOO International is the South-East Asian hub for CUCKOO products, with its presence in Malaysia, Singapore, Brunei and Indonesia.

As such, there could be greater opportunities for LSK to explore in the pipeline through this collaboration with CUCKOO International.

Since the inking of the memorandum of agreement on Wednesday, LSK’s share price rose 9% or seven sen to 82 sen as of Friday’s close.

On a year-to-date basis, LSK’s share price has increased by 30%. The group trades at a PE multiple of 16.29 times.

Article type: metered
User Type: anonymous web
User Status:
Campaign ID: 18
Cxense type: free
User access status: 3

LSK , Cuckoo , matress , collaboration , Eric Lee ,

   

Did you find this article insightful?

Yes
No

100% readers found this article insightful

Next In Business News

Biden's US$1.9tril aid bill wildly popular except by Republicans
Boeing to pay penalty to FAA over safety lapses
Oil mixed, US crude hits highest since 2019
Wall Street ends sharply lower, tech selloff weighs as bond yields climb
GameStop jumps nearly 19%; 'meme stocks' fade after another wild ride
Maybank expects better year ahead
Europe takes slow lane to recovery as stimulus outpaced by US
Inflation expected to return on high fuel prices, demand
Mah Sing sets higher target
Higher Q3 earnings for IJM Corp and IJM Plantations

Stories You'll Enjoy


Vouchers