MR D.I.Y is Malaysia’s largest home improvement retailer with a market share c.29% with 788 stores covering the whole of Malaysia and Brunei. We are positive on the Group for: (i) robust growth, driven by burgeoning market demand, and (ii) strong GP margins (above 40%). BUY with a TP of RM4.10 based on 36x PER of FY22E EPS. We believe it deserves a high premium as: (i) MR D.I.Y.’s 3-year average (FY19-FY22E) net profit CAGR of 31% is higher against its regional peer average of 10%, (ii) MR D.I.Y. is operating in an under-penetrated home improvement retail market, and iii) it is the largest home improvement retailer in Malaysia with no major domestic competitor in sight.

Despite the ongoing pandemic, MR D.I.Y. saw +13% QoQ/+63% YoY top-line growth, underpinned by its large network all over Malaysia and Brunei – 788 stores (+25% YoY). The home improvement retail space in Malaysia is expected to chalk a CAGR of 10.2% (FY19-24). MR D.I.Y is targeting to open 175 stores each year for FY21/FY22 (FY20: 141 stores opened). This ambitious target includes the opening of 50 MR DOLLAR stores – offering popular everyday essentials at RM2 and RM5 - and 25 stores for MR TOY – supplying value-for-money toys. We expect MR D.I.Y. to achieve a net cash position in 2021, comfortable enough to comply with its 40% dividend payout policy and fund further expansion in FY22.

Gross Margins have been stable and robust, with gross margin averaging 43% (2017-2020) despite having >72% of its products sourced from China which economies of scale have kept imported products’ costs low. The introduction of MR TOY is likely to sustain margins further Its product mix are reviewed every quarter and changes are made if needed to maintain these robust margins.

We are positive on MR D.I.Y. for its: (i) robust growth potential, driven by both higher market demand for its products and stores expansion, (ii) strong GP margins (above 40%), (iii) robust balance sheet, providing it ample cash for expansion, and (iv) net cash position ahead, allowing MR D.I.Y. to deliver sustainable dividends.

Source: Rakuten Research - 21 Jul 2021