KUALA LUMPUR: MyNews Holdings Bhd's partnership with BGF Retail Co Ltd to operate the latter's CU convenicence store brand in Malaysia may lead to cross-cannibalisation of the former's brands, according to Kenanga Research.
Its analysts Wan Mustaqim Wan Ab Aziz and Nikki Thang are also not optimistic about the venture given the overall subdued consumer sentiment amid the Covid-19 pandemic.
"The first CU store is expected to be rolled out by early 2021. But we are cautious over this move due to the prevailing execution risks for the expansion of a new brand (on top of its Maru Café expansion plans which have yet to show promising results)," they said in a report today.
"We are concerned over the possibility that the new CU outlets will overcrowd the already competitive consumer value store space and cross-cannibalise its existing MyNews brand.
"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,' Wan Mustaqim and Thang added.
MyNews signed a licence agreement with BGF Retail on Monday to operate CU outlets here.
BGF is South Korea's leading convenience store operator through CU, which has more than 15,000 stores in the country.
The agreement allows myNews to operate and sub-franchise CU outlets in Malaysia for 10 years, with an additional renewal term of 10 years.
"We understand that the group will be utilising its current Food Processing Centre (FPC) to produce fresh food offerings for the CU outlets,' Wan Mustaqim and Thang said.
They added that MyNews had targeted to open 500 CU stores in five years with 30 to 50 new CU stores gradually be rolling out in the first year.
They said no fund-raising would be needed as MyNews' earmarked capital expenditure of RM30 million to RM40 million for the first three years would be funded internally via the previous credit facilities secured for the FPC.
"The start-up cost for a new CU store is around 10 per cent lower than a MyNews outlet, due to its cheaper fresh food equipment."
Kenanga Research has maintained its "underperform" call on MyNews with an unchanged target price of 48 sen.
The stock's key risks include higher–than-expected sales, and faster-than-expected breakeven of FPC.
However, Wan Mustaqim and Thang said MyNews' halal-licenced FPC for products to be supplied to the new CU outlets would ideally help drive up the FPC's utilisation rate (currently at 35 per cent quicker to reach its financial year 2021 break-even target rate at 70 per cent).