TWO bank-based research houses initiated coverage on Mr D.I.Y. Group (M) Bhd – Malaysia’s largest initial public offering (IPO) in three years and the only listing to surpass the billion-ringgit mark in 2020.
To re-cap, the retailer made its debut on Bursa Malaysia’s Main Market on Oct 26 last year, holding the distinction of being the country’s biggest listing of a retailer to-date.
Prior to this, the previous IPO of any real size was that of petrochemical group Lotte Chemical Titan Holdings Bhd which raised RM3.77 bil in its public share sale in 2017.
CGS-CIMB Research viewed Mr D.I.Y positively, rating the company with an “add” call and a target price of RM3.45 based on a CY2022F price-to-earnings ratio (P/E) of 35 times in line with the research house’s Malaysia consumer sector average.
“This is at a 30% premium to regional peers, justified by Mr D.I.Y’s (i) stronger growth prospects; (ii) better return on capital profile; and (iii) resilient demand due to its unique pricing/product mix model,” justified analyst Syazwan Aiman Sobri in a coverage initiation review.
“Potential inclusion into the FBM KLCI and a dearth of large-cap high-growth consumer names could justify a scarcity premium and further re-rating for the stock, in our view.”
Established in 2005, Mr D.I.Y. is currently Malaysia’s largest home improvement retailer in terms of sales and store count (circa 29.1% market share by revenue in 2019), according to Frost & Sullivan, with a total of 688 outlets as of September 2020 across Malaysia and Brunei.
Aside from its core Mr D.I.Y. stores (656 stores as of September 2020), the company also operates Mr TOY, an affordable toy store concept (28 stores as of September 2020) and Mr DOLLAR, a low-cost fixed-price retail concept (four stores as of September 2020), both of which were started in May 2019 and Aug 2020, respectively.
However, Maybank IB Research begs to differ. It rated the company “hold’ with a target price of RM3.05 by pegging the company’s earnings to 37 times FY2021 P/E.
“Our valuation multiple reflects a 20% premium to its ASEAN regional home improvement retail peers given that Mr D.I.Y’s three-year (FY2019-FY2022E) net profit compound annual growth rate (CAGR) of 21.5% is expected to outpace its regional peer average of 8.9% while its price/earnings-to-growth (PEG) of 1.7 times at the current share price of RM2.98 is also more favourable relative to its peer average of 7.1 times.
“That said, we believe that Mr D.I.Y’s superior earnings CAGR prospects have been priced in,” noted analyst Jade Tam. “Hence, we initiate the stock with a “hold” with an upside of 3%.”
Elaborating further on Mr D.I.Y, Maybank IB Research also listed down the below risk factors:
- Licensing issues whereby as of end-October 2019, about a quarter of Mr D.I.Y’s stores and certain of its warehousing and storage units do not have a business licence and/or signboard licence;
- Mr D.I.Y’s vulnerability to infringement claims by third parties pertaining to its own white-label products;
- Vulnerability to disruptions in its supply chain given that China accounts for more than 70% of its imports;
- Exchange rate fluctuations; and
- Labour issues since foreign nationals accounted for 15% of its full-time employees end-1H 2020.
At 10.30am, Mr D.I.Y is down 2 sen or 0.67% at RM2.96 with 789,100 shares traded, thus valuing the company at RM18.02 bil. – Jan 29, 2021
