Mr DIY: Not included in MSCI Index but FBM KLCI entry beckons

MR DIY Group (M) Bhd may have missed out an inclusion into the MSCI Index in the latest rebalancing exercise for the MSCI Malaysia Index which is designed to measure the performance of the large and mid-cap segments of the Malaysian equity market.

But all is not lost for the home improvement retailer for it could still be poised for the next upcoming FBM KLCI Index inclusion which cut-off date is late-May with the results to be made known in June.

UOB Kay-Hian Research described the latest development as “within expectations” given that not any Mr DIY did not get included but Gamuda Bhd and Genting Plantations Bhd were even removed from the MSCI Malaysia Index.

“It is by virtue of low visibility on the many varying criteria for a MSCI Index inclusion,” justified analyst Philip Wong in a company update.

“Going forward, we think the MSCI Index inclusion for Mr DIY is still a high possibility given its relatively large market capitalisation (market cap as of May 11: RM24.4 bil, 20th largest market cap on Bursa Malaysia) and decent free float of 27%.”

By virtue of its 20th position in terms of market cap on Bursa Malaysia, UOB Kay Hian Research noted that Mr DIY meets the requirement of being >25th largest market cap company for an inclusion into the FBM KLCI.”

“This would be provided Mr DIY meets other requirements such as trading liquidity and free float,” the research house pointed out.

All-in-all, UOB Kay Hian maintained its “buy” rating on Mr DIYY with a target price of RM4.85 which is based on a price-to-earnings ratio (PE) of 45 times its 2022F earnings.

“The PE peg is at a 15% discount to large-cap domestic consumer peers’ Nestle (M) Bhd and QL Resources Bhd which average 54 times,” opined the research house.

“Despite being a retailer, Mr DIY has displayed extremely resilient earnings and offers superior three-year profit compound annual growth rate (CAGR) of 30.2% vs its FMCG (fast-moving consumer goods) peers (10.3%). Its market capitalisation is comparable with Nestle and QL as well.”

UOB Kay Hian added that it continues to like Mr DIY for (i) its attractive three-year net profit CAGR of 30.2% in 2020-23F; (ii) itts established track record and it being the largest home improvement retailer in Malaysia; (iii) home improvement spending in Malaysia being among the highest in the ASEAN region; iv) its highly cash-generative nature.

At the close of today’s shortened trading session in view of the Hari Raya public holiday tomorrow and Friday, Mr DIY was down 18 sen or 4.64% to RM3.70 with 9.31 million shares traded, thus valuing the company at RM23.22 bil. – May 12, 2021

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