• The first CU store, located at Centrepoint Bandar Utama, officially opens today. We attended a soft launch event yesterday, walking out feeling optimistic.
   
• CU’s fresh food segment was impressive. We believe that its contribution towards store earnings may exceed the 60% that management predicts.
  • The real standout was CU’s selection of trendy Korean street foods. These include topokki, popcorn chicken and fish cakes (called odeng).
     
  • This serves a niche market as restaurants and delivery are poor alternatives to grab-to-go, hot and fresh Korean food. Additionally, these are naturally spicier and flavourful, which we believe will appeal to local taste buds.
     
  • Alongside its crowd-drawing appeal, we believe this will drive the contributions from Grab. Grab delivery made up 1% of Mynews’ sales.
     
• We believe that CU is competitive in three ways:
  • As a base of experiential retail. With a clean and well-lit interior and K-pop playing in the background, it projects an image of safety and quality to both families and other customers. Plug-points and a cozy seating area appeal to diners and lengthen perusal times within the establishment.
     
  • Loyalty programme. As a niche product, we are confident that CU will generate a stable customer base with returning customers.
     
  • Brand visibility and appeal. CU is an established player in its home country, with extensive partnerships, resources and know-how.Leveraging these advantages, we believe that CU is capable of releasing a constant stream of promotions and collaborations with well-known figures and brands, appealing to as large a demographic as possible.
     
• In addition to fresh food, it serves as a distribution centre for beauty products and FMCG goods imported directly from South Korea. Some of these, such as the Heyroo brand, are exclusive to the CU franchise.
   
• The price point for these products are meant to be competitive with peers such as 7- Eleven and Family Mart.
   
• To churn out CU produce, no necessary alterations were made to the food processing centre (FPC).
   
• We maintain BUY on Mynews with an unchanged fair value of RM1.24/share. Our fair value is based on a PE of 29x on FY22F EPS. There is no ESG-related adjustment to our fair value.

Source: AmInvest Research - 1 Apr 2021