PETALING JAYA: Main Market-bound MR DIY Group (M) Bhd is poised for strong growth due to its rapid expansion, robust brand name and good prospects in the home improvement space.
As MR DIY is the largest home improvement retailer in the country, analysts are projecting healthy earnings and revenue growth over the next few years and a stronger market share for the company.
It also has an edge compared with its competitors in terms of pricing, as it is cheaper than most of its peers, they noted, adding that this was a plus point.
One analyst said the Covid-19 would not be a dampener to the company’s growth as shoppers would still need to buy and choose products that are competitively-priced.
Based on Frost & Sullivan’s price benchmark study on a basket of goods, MR DIY’s prices were on average 21% cheaper than its physical competitors.
UOB Kay Hian analyst Philip Wong, who is initiating a “buy” call with a target price of RM2.20, said MR DIY has a superior earnings growth outlook.
Its aggressive store expansion and increase in market share (enabled by its operational excellence and economies of scale and new growth avenues) have enabled MR DIY to realise four-year earnings compounded annual growth rate (CAGR) in 2017-21F to 20.6%, more than double its peers’ average of 8.1%.
“MR DIY’s valuation is undemanding if its growth prospects are taken into consideration. Furthermore, should MR DIY be able to achieve a track record for consistent earnings growth, it could rerate to command premium valuations similar to consumer darlings like Nestle and QL Resources.”
In the home improvement market amounting to RM7.7bil, MR DIY dominates with a lion’s share of 29.1%. This is almost double its market share in three years from 15.5% in 2016, showcasing its reliable and ambitious track record.
In addition, Wong said revenue was generated against an estimated 9.0% of the market share of home improvement outlets.
On home improvement spending, he said it remains undersaturated.
“Malaysians only spend 3.1% of total retail sales on home improvement. This is well below the likes of developed countries such as the United States (8.9%), the UK (6.7%), and Asean peers such as Thailand (12%) and Vietnam (9%).
“Effectively, this translates into higher expected sales CAGR (2019-24) of 8.9%. It is among the highest in the Asean, with the exception of Vietnam, ” he noted.
The research house is forecasting revenue CAGR of 22.6% for 2019-22.
Despite the Covid-19 pandemic and the subsequent movement control orders, the brokerage expected MR DIY to see top-line growth, albeit moderated at 4.5% year-on-year. It expects store expansion, among others, to fuel growth.
The company’s recent RM1.5bil initial public offering (IPO) was oversubscribed by retail investors as well as Malaysian and foreign institutional funds by 3.91 times.
The home improvement retailer’s IPO involved the offer of up to 941.49 million shares, with institutional investors taking up 779.96 million shares and the remaining 161.53 million shares going to retail investors.
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