Bullish Outlook for Mr DIY?

Mr DIY unveiled that its 1Q FY2021 net profit almost doubled year-on-year to RM124.79 mil (1Q FY2020: RM58.46 mil) while its revenue rose 63% to RM870.18 mil (1Q FY2020: RM534.08 mil) on 30 April 2021.

The strong results were supported by higher average monthly sales per store, underpinned by recovering consumer spending and double-digit profit margin. It was also a result of positive contribution from new stores, where its store network increased from 628 in 1Q FY2020 to 788 in 1Q FY2021. 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.

AmInvestment Bank Research is bullish on Mr DIY’s future earnings outlook due to:

·       Unrivalled gross profit margins of about 43%;

·       Expansion into less urban areas;

·       Quick store breakeven periods (less than two years); and

·       Expected success of multi-store format

The research house is positive with Mr DIY outlets’ earnings but is cautious of the performances of Mr DOLLAR and Mr TOY (subsidiaries of Mr DIY) amid a possible re-tightening pandemic restriction in light of the recent spike in cases.

Mr DOLLAR is not making profits yet but 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. 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.

The latest stock prices targeted by research houses are as follows:

Date	Open Price	Target Price	Upside	Source
3/5/2021	4.05	4.79	18.27%	HLIB
3/5/2021	4.05	4.48	10.62%	AmInvest

 

Not everyone has a positive view on the group. Asia Analytica, for example, thinks this pace of growth may not be sustainable given the fierce competitive outlook. This is mentioned in its report ‘Mr Don’t Invest Yet’ published in The Edge Malaysia (19 October 2020) before Mr DIY’s IPO.

In fact, Malaysia’s number of home improvement stores per million population is well ahead of Indonesia and Singapore, and on par with some of the developed economies like the UK (see chart).

What’s next?

The continued expansion of Mr DIY could make it a potential candidate for the exclusive FBM KLCI league. This would place it among the 30 largest stocks on Bursa Malaysia in terms of market capitalisation. At RM25.36bil market cap as of April 15, Mr DIY is already larger than Supermax Corp Bhd, Telekom Malaysia Bhd and Kuala Lumpur Kepong Bhd, to name a few FBM KLCI constituents.

Disclaimer: We are not recommending any counter or share nor accept any liability or loss for the stock mentioned above.

 

Reference:

1.     Cheah Chor Sooi, Gravity-defying growth prospect beckons for Mr DIY Group, 3 May 2021, Focus Malaysia

2.     Ganeshwaran Kana, Bullish outlook for Mr DIY, 16 April 2021, The Star

3.     Harizah Kamel, Mr DIY to gain from potential FBM KLCI entry, 16 April 2021, The Malaysian Reserve

4.     Mr Don’t Invest Yet, 19 Oct 2020, The Edge Malaysia