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KUALA LUMPUR (Oct 13): MyNews Holdings Bhd’s CU store business in South Korea could be positive in the long term for the group as it offers a new product offering in line with ever-changing consumer trends, Maybank IB Research said today.
The research house said in a note that CU’s fresh food will be manufactured at MyNews’ existing food processing center, helping to improve its utilization rate in conjunction with the pace of store openings.
MyNews announced yesterday that it had signed a licensing agreement with BGF Retail Co Ltd to be the main franchisee of the South Korean convenience store brand CU in Malaysia. The agreement is for a period of 10 years, with an option to renew for an additional 10 years.
Maybank IB Research believes that initial store openings will focus on the Klang Valley and within school / university districts or residential areas.
However, the payback period is expected to be two to three years per store, and the first store is expected to open in the first quarter of 2021 (1Q21).
“MyNews will grow stores across three different retail formats (MyNews, SuperSave, and CU) in the future, and we believe execution is of the utmost importance to prevent further cost leakage amid an already challenging operating environment led by the [Covid-19] pandemic, “said the research house.
As MyNews’ short-term earnings would still depend on the recovery of sales at existing MyNews stores, Maybank IB Research maintained its option to “sell” the shares, with a price target (TP) of 57 sen.
“We expect store crowd to remain weak in sequential quarters due to the recent resurgence of Covid-19 cases. [There is] no changes to [our] earnings estimates for now, ”he said.
Meanwhile, Kenanga Investment Bank analyst Bhd Wan Mustaqim Wan Ab Aziz wrote in a note today that the research house is cautious about CU’s licensing deal mainly due to the likely cannibalization between CU and the MyNews outlets in Malaysia.
Wan Mustaqim said that Kenanga is also aware of the “prevailing execution risks for expanding a new brand” by MyNews.
“Overall, we are a bit negative on this company, given that overall consumer sentiment is subdued amid the current Covid-19 outbreak. [We have an] call ‘low performance’ with [our] 48 sen TP maintained [for MyNews shares],” he said.
In Bursa Malaysia today, MyNews closed down 1.68% at 60.5 sen, with a market value of RM412.7 million.
The stock saw some 16 million shares traded.
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