Inter-Pacific sets FV of RM1.85 on Mr DIY IPO

by SHAZNI ONG / pic by BLOOMBERG

INTER-PACIFIC Research Sdn Bhd set a fair value (FV) of RM1.85 for Main Market-bound Mr DIY Group (M) Bhd, a premium to its IPO price of RM1.60, based on the group’s merits and its outperformance against its Asean peers.

At an IPO price of RM1.60 sen per share, the group is priced at a record price-to-earnings ratio (PER) of 31.3 times (excluding calendar year 2019 [CY19] listing expenses) to its CY19 earnings.

“We placed an FV of RM1.85 sen based on a target PER of 27.5 times to our CY21 earnings per share of 6.7 sen,” Inter-Pacific analyst David Lai Yoon Hui said in a recent note.

Lai, who has a “subscribe” call on the stock, noted that this translates to a potential upside of 17.1%, including dividends.

“Our target PER is below its Asean peers and above most Malaysian-listed brick-and-mortar IPOs. We err on the side of caution and justify our lower PER valuation against Asean peers, based on Malaysia’s current political uncertainties, dampening foreign investors sentiment and suppressing its PER valuation,” he said.

Inter-Pacific estimates the group to record earnings growth of 16.4% year-on-year (YoY) and 14.4% YoY to RM369 million and RM422 million in CY20 and CY21 respectively, supported by top-line growth as a result of higher stores expansion from Mr DIY, Mr Toy and Mr Dollar Sdn Bhd.

“Our financial year 2020 (FY20) and FY21 earnings estimates are premised on the key assumptions of flat same-store sales growth for all Mr DIY stores and less than three years payback period for Mr DIY, Mr Dollar and Mr Toys opened in 2020 and 2021,” Lai said.

He noted that the group issued dividends of 2.1 sen and eight sen based on its large issued share capital of expected public shares, and the group will introduce a dividend policy of a minimum of 40% payout of earnings.

“In our forecast model, we envisage 2.4 sen and 2.7 sen dividends in CY20 and CY21, translating a dividend yield of 1.5 and 1.7% respectively,” added Lai.

On investment merits, Lai said this consists of a wide range of products, competitive product prices, economies of scale, largest home improvement retailer in Malaysia, locational convenience, curating best product performers, strong internal cashflow and scalable business.

Risks which he highlighted include new stores that may not be profitable, unable to meet the change in consumer preference, logistical hiccups, supply chain disruption, weakening of the ringgit and slowdown in new store expansion.

Mr DIY is set to become the largest listing on Bursa Malaysia in three years as it seeks to raise RM1.5 billion from its IPO to strengthen and expand its presence in the local home improvement market.

With the offer price of RM1.60 a share, Mr DIY will have an estimated market capitalisation of RM10 billion when it lists on the Main Market of Bursa Malaysia on Oct 26, 2020.

The valuation will also place the company among the top 40 largest listed companies by market capitalisation on Bursa Malaysia.

The last time Malaysia saw such a large listing was three years ago when Lotte Chemical Titan Holding Bhd raised RM3.77 billion in July 2017.