The research house recommends "outperform" on the stock with a target price of RM4.10 based on FY22 price-earnings of 36x.
"We believe it deserves a high premium as MR DIY’s 3-year average (FY19-FY22E) net profit CAGR of 31% is higher against its regional peer average of 10%, MR DIY is operating in an under-penetrated home improvement retail market, and it is the largest home improvement retailer in Malaysia with no major domestic competitor in sight," it said.
Despite the ongoing pandemic, MR DIY saw 13% quarter-on-quarter and 63% year-on-year top-line growth, underpinned by its large network of 783 stores all over Malaysia and Brunei.
Only 33% of its stores are located in the Central Region followed by the Southern, Northern and East Coast Region at 21%, 18% and 14%, respectively.
The home improvement retail space in Malaysia is expected to chalk a CAGR of 10.2% (FY19-24) and is still largely under-penetrated, thus offering the group the opportunity to open new
stores and new catchment areas.
The group is targeting to open 175 stores each year for FY21/FY22, including the opening of 50 MR DOLLAR stores and 25 MR TOY stores.
"We expect MR DIY to achieve a net cash position in 2021, comfortable enough to comply with its 40% dividend payout policy and fund further expansion in FY22," said Kenanga.
Kenanga added that it believes MR DIY's growth will be driven by higher market demand for its products and store expansion, strong margins, robust balance sheet and net cash position.