KUALA LUMPUR (April 15): AmInvestment Bank Research has maintained its “buy” call on Mr DIY Group (M) Bhd, and revised up its target price to RM4.48 from RM3.80, as it foresees the group to benefit from its potential FBM KLCI entry.
The research house said in a note today its fair value for the stock is based on a price to earnings (PE) of 38 times on FY23 earnings per share (EPS), and it is at a 30% premium to its regional peers’ average of 29 times.
“We applied a premium to account for the strong possibility that Mr DIY will be included in the FBM KLCI, as well as for its recovery prospects as pandemic restrictions begin to wane,” it said.
It said it is optimistic about Mr DIY’s future earnings outlook, given its unrivalled gross profit margins of about 43%, expansion into less urban areas, quick store breakeven periods of less than two 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.
After speaking to Mr DIY recently, AmInvestment Bank Research maintained its sales growth of 52% on Mr DIY for FY21.
“This is expected to be underpinned by the opening of 100 Mr DIY stores, 25 Mr Toy stores and 50 Mr Dollar stores in FY21. So far, Mr Toy has seen improvements in basket size, experiencing a 33% year-on-year increase to RM40 by end-2020,” it said.
AmInvestment is also positive on the group’s intention to open a larger proportion of stores in remote areas, as these outlets have a 15-20% higher revenue contribution than urban counterparts.
Meanwhile, it believes that Mr DIY’s 1QFY21 performance will only be mildly affected by the latest movement control order (MCO), as more than 95% of the group’s outlets remained open.
It also expects a stronger contribution from its high-margin stationery and sports segment, due to a gradual relaxation of MCO restrictions and a reopening of schools.
“The segment yields the second-highest GP (gross profit) margin of about 46%. We expect it to return to pre-pandemic levels of about 10% of revenue, after falling to about 7% in FY20,” it said.
Affirming its gross profit margin of 43% for FY21, it believes that costs of goods will not fluctuate too much, as Mr DIY has made attempts to reduce 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.
At 10.21am, Mr DIY fell three sen or 0.71% to RM4.17, valuing the group at RM26.55 billion.
