LOFTY valuation as reflected in its initial public offering price of RM1.60 is fast forgotten as Mr DIY Group (M) Bhd surprised its loyal – or rather brave-hearted – investors by posting hefty earnings for its 3Q FY2020.
This is after the home improvement retailer posted a 54% jump in net profit to RM113.45 mil for that financial period ended Sept 30,2020 from RM73.62 mil a year ago on the back of higher sales.
For the quarter under review, the company recorded a 32% surge in revenue to RM740.2 mil from RM561.72 mil in the corresponding quarter last year. An interim dividend of 0.73 sen was declared.
Moving forward, UOB Kay Hian’s foresees that Mr DIY’s sturdy revenue growth will be underpinned by its store expansion.
“Based on our net additions assumption of 127/170/170 stores over 2020/2021/2022, average store count could grow by 20-28% over our forecasted period,” wrote analyst Philip Wong in a results review.
“Mr DIY’s store expansion includes other distinct store formats (ie Mr Dollar and Mr Toy), accounting for 43% of its store expansion.”
All-in, UOB Kay Hian Research maintained a “buy” rating on Mr DIY with a target price of RM2.20 based on 31 times its FY2021F price-to-earnings ratio (PE).
“Its regional ASEAN peers are trading at an average of 26.6x FY2021F PE, but we opine that Mr DIY well deserves a 15% premium to its peers,” reckoned the research house.
This is due to the company’s (i) significantly superior four-year earnings compound annual growth rate (FY2017-FY2021F) outlook of 20.6% which is more than double its peers’ average of 8.1%; (ii) its established track record and it being the largest home improvement retailer in Malaysia; and (iii) home improvement spending in Malaysia is among the highest in the ASEAN region.
If this is too low, UOB Kay Hian Research said its “blue-sky valuations” suggest a target price of RM2.50.
“This is premised on Mr DIY trading at a premium of 25% at 35.3 times FY2021F to its regional peers,” projected Wong.
Consistent execution for a large-cap consumer company has seen the likes of Nestle (M) Bhd and QL Resources Bhd commanding lofty valuations at 52.7 times and 49.5 times respectively, according to the research house.
“Therefore, a rerating on Mr DIY’s valuations going forward would not be too far-fetched,” suggested Wong. “Additionally, expansion of its new store format, Mr Dollar could prove an additional leg of growth.”
The key downside risks are extended movement control order-like conditions, weakening of the ringgit against the renminbi, and trade restrictions by China.
At 4pm, Mr DIY was up up 15 sen or 7.98% at RM2.03 with 45.96 million shares traded, thus valuing the company at RM12.38 bil.
P/S: The writer wishes to apologise to viewers for mistakenly stating Mr DIY’s interim dividend as 73 sen instead of 0.73 sen in the original article.
