• We expect MR.DIY prospects to remain exciting as it is set to capture a bigger slice of Malaysia’s home improvement retail sales, anticipated to grow at CAGR of 10% from 2019-2024.
• With over 827 stores across Malaysia and Brunei, MR.DIY possesses a resilient business model that sees more than 90% of its stores being profitable, with a relatively short payback period of 2-years for a new store.
• We estimate its average sales per store to grow at 11% CAGR over FY21-FY23 reflecting higher contribution from new concept stores; MR.Dollar and MR.Toy. We have assumed 50/90/140 new MR. Dollar and 25/35/45 new MR. Toy stores for FY21-23F.
• We initiate coverage on MR.DIY with TP of RM4.10 pegged to 59.5x PE (attached to +0.5SD) based on average FY22/23F EPS of 6.9sen.

Sales stayed strong during pandemic

We observed that MR.DIY business was least affected during the pandemic, as its products are listed as essential items under the distributive trade category. Thus, its stores are deemed as “essential” during the lockdown and continued to operate normally. Postpandemic, Mr DIY business remains popular due to its focus on a large target audience.

Robust business model

With over 827 stores across Malaysia and Brunei, MR.DIY possesses a strong resilient economic model stores that sees more than 90% of its stores being profitable, with a track-record relatively short payback period of 2-years payback period for a new stores. The company enjoys extremely high ROE of 57% in FY20, and we forecast its ROE to stay above 30% for FY21-FY23F.

Sector in growing phase

We forecast MR.DIY’s earnings to grow at 10% CAGR from 2021- 2023F as it continues to capture the home improvement products market. The response by the government to swiftly vaccinate the population has allowed the country to enter endemic phase which would improve consumer confidence and spending.

Initiate BUY with TP RM4.10, a 12% upside

We initiate coverage on MR.DIY with TP of RM4.10 based on average FY22/23F EPS of 6.9sen and +0.5SD of 59.5x. We think our valuation is justified, judging from our intrinsic value estimate of RM4.20 if we cross-check using EV/ROIC valuation. Central to our investment thesis is the high number of its stores being profitable, and generating high rates of return, and hence, would garner a sustainable ROIC level of 31% over FY21-FY23f.

Source: BIMB Securities Research - 26 Oct 2021