WITHOUT a doubt, the mushrooming of Mr DIY Group (M) Bhd’s outlets at every street corner – not to mention tier-one shopping malls – has expedited the demise of many mom-and-pop hardware stores nationwide.
Amid its blistering expansion pace, RHB Research expects the company’s proven business model being able to sustain its robust earnings growth momentum moving forward, notwithstanding the challenge posed by a spike in the COVID-19 infection.
“Buying interests should continue to be spurred by the market’s pursuit of quality and liquid large-cap consumer stocks as well as the stock’s imminent inclusion into the FBM KLCI,” justified analyst Soong Wei Siang in a results review.
On Friday (April 30), Mr DIY unveiled that its 1Q FY2021 net profit almost doubled year-on-year (yoy) to RM124.79 mil (1Q FY2020: RM58.46 mil) while its revenue rose 63% to RM870.18 mil (1Q FY2020: RM534.08 mil).
According to RHB Research, the home improvement retailer’s store expansion plan is well on track with net new addition of 54 stores in 1Q 2021 versus the target of at least 175 stores in 2021.
“Meanwhile, the management is not overly concerned by the uptick in sourcing cost considering the high gross profit margin (GPM) it commands and the industry leading business scale,” justified the research house.
“Additionally, the aforementioned operating leverage is expected to more than offset the impact as we believe sales will remain robust thanks to the business model that offers comprehensive products at affordable prices in accessible store locations.”
All-in, RHB Research which forecasts a three-year earnings compound annual growth rate (CAGR) of 28% for Mr DIY has maintained its “buy” rating on the company with a higher target price of RM4.71 from RM3.95 previously.
Meanwhile, AmBank Research is positive about earnings contribution from Mr DIY outlets but is wary of the lacklustre performances of Mr DOLLAR and Mr TOY amid a possible re-tightening pandemic restrictions in light of the recent spike in cases.
“Mr DOLLAR is not making profits yet. The group believes that after it achieves a critical mass of stores, it can take advantage of economies of scale and has a higher leverage over suppliers,” the research house pointed out.
“Similarly, Mr TOY’s mall outlets generally saw a weaker performance as compared to stand-alone stores. Given that the majority of Mr TOY outlets are located within malls, the segment saw reduced transaction volume and footfall in general.”
Nevertheless, AmBank Research retained its “buy” rating on Mr DIY with an unchanged fair value of RM4.48/share.
At 9.45am, Mr DIY was down 4 sen or 1% to RM3.95 with 1.05 million shares traded, thus valuing the company at RM24.79 bil. – May 3, 2021
