KUALA LUMPUR: AmInvestment Bank Research is raising its target price on MR DIY Group (M) Bhd on optimism over its potential inclusion into Malaysia's benchmark index as well as its recovery prospects as pandemic restrictions are lifted.
"We are optimistic on MR DIY’s future earnings outlook, given its unrivalled GP margins of ~43%, expansion into less urban areas, quick store breakeven periods of <2 years and expected success of its multi-store format.
"Also, a recovery in pandemic restrictions will improve footfall and the transaction volume of high-margin stationery and sports equipment items," it said in a morning report.
The research house has a "buy" call on the stock and increased its fair value to RM4.48 a share from RM3.80 a share.
The higher price-earnings of 38x on FY23 earnings per share as compared to 36x previously is at a 30% premium to its regional peers' average of 29x to account for the strong possibility of the company's inclusion into the FBM KLCI, said AmInvestment..
Following a meeting with MR DIY's management, Aminvestment mantained its sales growth target of 52% for FY21, underpinned by the opening of 100 MR DIY stores, 25 MR TOY stores and 50 MR DOLLAR stores in FY21.
A larger proportion of these stores are to be opened in remote areas, which is positive news given that these outlets have a 15% to 20% higher revenue contribution than their urban counterparts.
AmInvestment also expects the MCO to have a mild impact on the group's 1QFY21 performance as more than 95% of its outlets remained opened.
Meanwhile, the high-margin stationery and sports segment is expected to record stronger contribution following the relaxation of MCO restrictions and the reopening of schools.
AmInvestment maintained its gross profit margin of 43% for FY21 as MR DIY has reduced currency risk against China's yuan.
"While it has not hedged its currency exposure, it has reduced its China imports from 74.3% in 1HFY20 to 70.8% at end-FY20.
"Going forward, we do not expect any significant change to this value, as attempts at alternative sourcing may not be competitive," it said.
MR DIY does not expect any significant change to its yearly expenses, having reduced its exposure to currency fluctuation.
AmInvestment also believes contribution from MR DIY's e-commerce channels will remain immaterial with an average monthly figure of less than RM1mil as customers prefer to pay and handle the products in person.