PROSPECTS of a rebound for MR DIY Group (M) Bhd is intact considering the underlying fundamentals of the home improvement retailer have remained unchanged while the current market softness is temporary.
This is despite the company’s 1H 2021 results trailed expectations on business disruption stemmed from trading limitations imposed under the movement restrictions, according to RHB Research.
“Investors should instead focus on the exciting 27% three-year net profit CAGR (compound annual growth rate) on offer, a scarcity within the sector – premised on a proven business model, established brand equity, and continuous expansion plans,” opined analyst Soong Wei Siang in a results review.
MR DIY’s net profit for its 1H FY2021 rose 79% year-on-year (yoy) to RM206.92 mil (1H FY2020: RM115.44 mil) on the back of a revenue of a 55% yoy increase in revenue to RM1.63 bil (1H FY2020: RM1.05 bil).
Moving forward, RHB Research expects sales to rebounding progressively from the low in June as we given trading limitations have been gradually relaxed in 3Q 2021.
Expansion-wise, management has stood by its 175 net store addition target, assuming the limitations on construction and renovation works are lifted in September, but the store mix could be tweaked depending on the business environment.
“Meanwhile, the company is banking on the introduction of new product store keeping units (SKUs) and rising contribution from private label products to mitigate the impact of higher sourcing costs,” observed RHB Research.
“Beyond the near term, we believe it will continue to chart robust earnings growth driven by its outlet expansion.”
All-in-all, RHB Research retained its “buy” call on MR DIY with a lower target price of RM4.41 (from RM4.71 previously).
Meanwhile, Maybank IB Research has upgraded MR DIY to “buy” (from “hold” previously) with an unchanged target price of RM4 given its mass market appeal and expected earnings recovery once full vaccination rates are achieved nationwide and with the easing of lockdown measures.
“With 19% total shareholder return, we upgrade MR DIY to “buy” on 40 times FY2022E PER (price-to-earnings ratio) based on its superior earnings growth prospects versus its regional peers,” noted analyst Jade Tam.
Despite trading at a high PE ratio of 36 times on FY2022F earnings per share (EPS), AmResearch reckoned that the high PE is justified due to the group’s status of being the sole large cap player providing exposure to Malaysia’s untapped home improvement market with its stable and non-cyclical consumer product offerings in a period of volatility.
“… (thus) the potential of becoming a consumer proxy similar to Nestle (M) Bhd or Fraser & Neave Holdings Bhd (F&N),” opined the research house.
At 11.36am, MR DIY was unchanged at RM3.38 with 3.06 million shares traded, this valuing the company at RM21.19 bil. – Aug 6, 2021
