KUALA LUMPUR: The promise of a higher number of store openings for the year, which is now expected to hit 180 as compared to 140 previously, is giving a boost to MY DIY Group (M) Bhd's earnings potential.
Following the opening of 35 new stores in the third quarter of 2023, MR DIY has so far opened a total of 123 stores this year.
This is in line with its target of 180 store openings in 2023, for a total of 1,260 stores by the end of the year.
Kenanga Research said in its results note it maintained its FY23 forecast numbers on the home improvement retailer but raised its profit after tax projection by 11% to reflect the growing number of stores.
Also factored into the new estimate is a gross profit margin of 45%, raised from 43% previously, and a higher average basket size of RM29, up from RM28.
"Correspondingly, we raise our target price to RM1.78 based on FY24 price-earnings ratio (PER) of 25x, which is at a 5x multiple premium to the average forward PER of its regional peers of 20x to reflect a relatively under-penetrated home improvement market in Malaysia.
The research firm maintained its "outperform" recommendation on the share with favourable views on its dominant position in Malaysia's home improvement market, impressive gross margins, vigorous store expansion strategy and impending initiation of an automated inventory system in 1QFY24.
In 9MFY23, MR DIY's net profit of RM402.04mil, which was up 19% year-on-year, came within market expectations. Its revenue was also 10% higher y-o-y to RM3.21bil during the period due to the new store contributions.
RHB Research, which also has a "buy" call on MR DIY, said it expects a sequential pick-up in 4Q23 sales boosted by stronger seasonality on the back of the year-end festive season and school holidays.
It is also positive on MR DIY's growth prospects due to its value-for-money product offerings, resulting from its industry-leading scale and effective business model.
"The gap between its valuation and that of other large-cap consumer peers is unwarranted, as we take in its solid earnings delivery and consistent dividend payout since listing," it said in its results note.
"Post-results, we make no changes to our earnings forecasts and discounted cash flow-derived target price of MYR2.29 (inclusive of a 4% ESG premium), which implies 34x price-earnings FY24, which is on par with the stock’s three-year mean," it said.