Mr DIY to gain from potential FBM KLCI entry

By HARIZAH KAMEL / Pic TMR

MR DIY Group (M) Bhd is expected to benefit from its potential entry in the FTSE Bursa Malaysia KLCI (FBM KLCI), as well as its recovery prospects as restrictions over Covid-19 begin to lessen.

AmInvestment Bank Bhd (AmInvest) in a report yesterday said it is optimistic about Mr DIY’s future earnings outlook, given its gross profit (GP) margin of 43%, expansion into less urban areas, quick store breakeven periods of less than two years and expected success of its multi-store format.

“A recovery in pandemic restrictions will improve footfall and the transaction volume of high-margin stationery and sports equipment items,” it said.

AmInvest maintained its ‘Buy’ call on Mr DIY with a higher fair value (FV) of RM4.48 per share versus RM3.80 per share previously, based on a price-to-earnings (PE) of 38 times on financial year 2023 forecast (FY23F) earnings per share (EPS).

“Our PE of 38 times is at a 30% premium to its regional peers’ average of 29 times.

“We applied a premium to account for the strong possibility that MR DIY will be included in the FBM KLCI, as well as for its recovery prospects as pandemic restrictions begin to wane,” it said.

With the exception of Mr DIY’s Home Product Centre pcl in the Stock Exchange of Thailand 50 Index, none of its regional peers are included in their local equivalents.

AmInvest said Mr DIY has the scarcity premium of being the sole large market capital player in the affordable home improvement retailer category.

The research firm also maintained its sales growth of 52% for FY21F, which is expected to be underpinned by the opening of 100 Mr DIY stores, 25 Mr TOY stores and 50 Mr DOLLAR stores in FY21.

To date, Mr TOY has seen improvements in basket size, experiencing a 33% year-on-year (YoY) increase to RM40 by the end of 2020.

AmInvest is positive on news that the group intends to open a larger proportion of stores in remote areas as these outlets have a 15%–20% higher revenue contribution than urban counterparts.

“We believe Mr DIY’s first quarter FY21 performance will only be mildly affected by the latest Movement Control Order (MCO).

More than 95% of the group’s out- lets remained opened,” it noted.

On the flip side, the group has seen a lower volume of transactions during the MCO as a result of lower footfall. Some mitigation may come in the form of a higher basket size as customers aim to make fewer trips.

AmInvest also expects a stronger contribution from its high-margin stationery and sports segment due to a gradual relaxation of MCO restrictions and a reopening of schools.

The segment yields the second-highest GP margin of around 46% which AmInvest expects to return to pre-pandemic levels of around 10% of revenue after falling to 7% in FY20.

“We affirmed our gross profit margin of 43% for FY21F. We believe that costs of goods will not fluctuate too much, as MR DIY has made attempts to reduce currency risk against China’s yuan,” it said.

The firm also highlighted that Mr DIY has not hedged its currency exposure and has reduced its China imports from 74.3% in first half of 2020 to 70.8% at end-FY20.

AmInvest does not expect any significant change to the value going forward, as attempts at alternative sourcing may not be competitive.