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This article first appeared in The Edge Malaysia Weekly on July 1, 2019 - July 7, 2019

THE  recent launch of a new food processing centre (FPC) has got MyNews Holdings Bhd CEO Dang Tai Luk excited. “Rolling out fresh food together with our Japanese partners is a game changer for us and also for convenience stores in the country,” he tells The Edge in a recent interview.

“From now on, convenience stores will be viewed very differently in Malaysia. You can walk in and get a good meal, be it for breakfast, lunch or dinner ... a meal that is hygenic and of good quality, and that also tastes good. What’s more is that it is at a competitive price [and] at your convenience.”

The FPC in Kota Damansara, Selangor, has been up and running for about two weeks.

It is divided into two sections, with one producing ready-to-eat (RTE) meals such as curry laksa, onigiri and bento sets, and the other, freshly baked goods.

The food products are prepared daily and transported in chilled trucks to various outlets in the Klang Valley by the company’s logistics team.

Before this, MyNews procured its food items from various suppliers, but had to put up with inconsistent quality and different price points. It has been able to resolve these issues with the FPC, established at a cost of about RM100 million as a 51:49 joint venture with Japanese partners Gourmet Kineya and Marubishi Group, which specialise in RTE and baked goods respectively.

Currently, 10 types of fresh food from the RTE segment and baked goods are shipped out to about 200 outlets in the Klang Valley. The fresh food products are rotated based on demand.

As at end-April, MyNews had 456 stores nationwide and the FPC, at full capacity, will be able to cater for the needs of 600 outlets.

With the FPC set up, MyNews is now more willing to take up bigger format stores as it has a better range of products to offer. “Taking up bigger spaces is now an option open to us,” Dang says.

Over the past few years, the local convenience store landscape has undergone rapid changes brought about by heightened competition. Family Mart’s entry into the Malaysian market in 2016 and innovations at MyNews outlets are among the developments that have got Malaysians used to the idea of picking up a meal or a dessert at convenience stores.

Dang is convinced that fresh food served at convenience stores is the way forward for the sector. “It happened in Japan during the 70s and in Taiwan in the 80s. In Thailand, 7-Eleven is operated by CP All PCL, a food producer. It is a trend, a necessity in fact, and I strongly believe it is catching on in Malaysia as well.”

Analysts who cover MyNews have a “buy” call on its shares . They expect the fresh food offerings to result in higher traffic at is outlets, and result in better revenue mix going forward.

Food and beverage is currently the highest contributor to revenue, making up about 42% of total sales. The target this year is for the F&B contribution to grow by 5% on the back of fresh food products alongside Maru Cafe’s coffee and ice cream products, says Dang.

UOB Research in a May report opined that the ideal benchmark in terms of food revenue contribution would be that of Thailand’s CP All and Family Mart Malaysia, which is 70% to 80% of total revenue.

“Food, specifically RTE, has the best gross margin (45%) compared with non-food (40%) and beverage (30% to 40%) margins,” it said.

Overall, MyNews has seen improvement in same store sales growth (SSSG) over the past year, says Dang. SSSG turned positive this year from a 0.5% contraction last year, thanks to the introduction of Maru Cafe’s products, which are now available at 90 outlets.

With the FPC up and running, Dang says it is time for MyNews to look at expanding its network. It aims to open about 80 stores this year — the same as last year — although it is only a “forward number” to work on.

To date, about 30 new outlets have been added this year.

MyNews will continue to focus on expansion in the Klang Valley, but Dang says it will go wherever there is demand, which he indicates is in areas with bigger populations such as Johor Baru and Penang.

“We hope to grow more and the network size will continue to increase. This is a business where you have to reach the mass market. With the new food range, we hope to be able to pull bigger crowds into our outlets.”

For the second quarter ended April 30, net profit increased 16.4% to RM7.95 million from RM6.83 million a year ago. Revenue surged 41% to RM132.98 million from RM94.18 million previously.

MyNews’ share price has shed 15.07% over one year, falling from RM1.59 on June 28, 2018, to RM1.35 on June 27, 2019.

Analysts’ average price target for the stock is RM1.67, which implies an upside of about a fifth. At those levels, its earnings ratio would be 31.18 times, comparable to that of its peer 7-Eleven Malaysia Holdings Bhd’s 31.96 times. 

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