Investment Highlights

• We initiate coverage on MR D.I.Y. Group (MR DIY) with a BUY recommendation. Our fair value of RM2.94/share for MR D.I.Y. is based on a PE of 31x FY22F EPS of 9.5 sen.

• Our PE assumption of 31x is at the high end of the FY22F PEs of 23x–31x of home improvement retail companies in Thailand, Indonesia and THE Philippines. Thailand’s leading home improvement retail company, Home Product Center (HomePro), is trading at an FY22F PE of 31x.

• We believe that MR D.I.Y.’s premium PE valuation is justified due to the group’s strong profit growth, expansionary business plans and established name recognition. MR D.I.Y. is currently trading at an FY21F PE of 33x and FY22F PE of 27x.

• We hold the view that MR D.I.Y. is positioned to benefit from a recovery in consumer spending in Malaysia in FY21F. The group’s large network of stores across cities and small towns, coupled with products priced within the affordable range, are expected to translate into higher customer footfall and spending.

• MR.DOLLAR and MR.TOY are envisaged to support MR D.I.Y.’s profit growth in the future. MR.DOLLAR, which focuses on F&B products and products priced at RM2.00 and RM5.00/piece, would allow MR D.I.Y. to compete with the likes of EcoShop and Daiso. We do not foresee sales cannibalization between MR.DOLLAR and MR D.I.Y. as there is minimum product overlap.

• The group plans to open 50 MR.DOLLAR and 25 MR.TOY stores in FY21F. Average costs to open MR.DOLLAR and MR.TOY stores are about RM1.2mil and RM1.0mil respectively, which is lower than the RM1.6mil cost for a MR D.I.Y. store. Over 90% of MR D.I.Y. stores are profitable with an average target payback period of less than 2 years.

• We believe that MR D.I.Y. would be able to grow its market share (based on revenue) in the home improvement retail business in Malaysia underpinned by its aggressive store openings and a recovery in consumer spending. We estimate MR D.I.Y.’s market share to exceed 30% in FY21F from 29.1% in FY19. Currently, MR D.I.Y. is the largest home improvement retailer in Malaysia with 670 stores.

Source: AmInvest Research - 30 Nov 2020