PETALING JAYA: MR DIY Group (M) Bhd is within “touching distance” of entering the FBM KLCI with just less than a 60-sen jump in its share price.
The home improvement retailer, which was the largest initial public offering (IPO) on Bursa Malaysia in recent years, closed at RM2.42 yesterday.
UOB Kay Hian Malaysia Research said MR DIY would command a market capitalisation of RM18.8bil at a share price of RM3, bringing it closer for an inclusion into the FBM KLCI.
“Currently, a company requires a market capitalisation of RM19.5bil to reach the 25th largest market cap company for an inclusion into the FBM KLCI.
“Given MR DIY’s attractive earnings trajectory beyond 2021, this could be well within its grasp.
“Furthermore, in January 2021, management’s stake would be reclassified and the free float would rise up to over 30% from the existing 15%, ” the research house said in a note.
In less than a month since its listing on Oct 26, the MR DIY stock has surged by over 51% from its offer price of RM1.60.
UOB Kay Hian Malaysia Research described the strong market interest as “only a prelude to its electrifying prospects” that have yet to be fully priced in.
In view of the positive outlook, the research house has upgraded its earnings and valuation estimates for MR DIY.
On the back of higher revenue-per-store growth and margin assumptions, UOB Kay Hian Malaysia Research has raised its 2020-2022 net profit forecasts by 6%, 9% and 9% respectively.
“Our previous 2021 revenue-per-store projection was merely 1.2% higher versus 2019’s and is therefore conservative.
“Maintain ‘buy’ with a higher target price of RM3 (from RM2.40), pegged at 35 times the 2021 price-to-earnings (PE) ratio (31 times previously), or the lower end of large-cap domestic consumer peers.
“MR DIY displays resilient earnings and offers attractive growth going forward, well deserving a 30% premium (15% previously) to its regional Asean peers’ average of 26.6 times forecast 2021 PE, ” it said.
UOB Kay Hian Malaysia Research believes that resilient demand, higher store count and seasonal demand due to year-end festivals and school holidays would support the home improvement retailer’s earnings in the fourth quarter of financial year 2020 (4Q20).
It added that the 4Q20 earnings could be flattish, at the least, on a quarter-on-quarter basis.
“This would be an impressive feat, given that the conditional movement control order (CMCO) has been implemented since Oct 14. The earlier MCO had impacted its first-half earnings that only summed up to 3Q20 earnings.
“With that, it is poised to beat consensus expectations by at least 10%, ” it said.
In terms of store expansion, MR DIY is not limiting its presence in urban areas and had extended into Sabah and Sarawak.
It is noteworthy that the East Malaysia stores have outperformed those in Central Malaysia by 15% in terms of revenue per store at RM4.5mil annually.
UOB Kay Hian Malaysia Research expects store expansion and robust same-store sales (SSS) growth to fuel MR DIY’s growth, moving forward.
Combined, the two factors translate into a three-year revenue compounded annual growth rate of 23.8% between 2019 and 2022.
“Backed by instant brand recognition and need-based demand, new stores are immediately profitable.
“It dramatically reduces the payback period for new stores to two years from the usual three to 3.5 years.
“MR DIY’s impressive revenue growth, high profitability and short payback period have culminated in strong cash generation, ” stated the research house.