KUALA LUMPUR (Feb 17): Analysts remain bullish on MR DIY Group (M) Bhd as the Covid-19 pandemic which has dampened consumer spending has not disrupted its earnings growth.
UOBKayHian analyst Philip Wong said in a note on Thursday (Feb 17) that he maintains a "buy" rating on MR DIY with an unchanged target price of RM4.85.
His target price is based on a price-earnings (PE) ratio pegged to 45 times of its earnings per share (EPS) of 10.8 sen for the financial year ended Dec 31, 2022 (FY22).
The PE peg is at a 15% discount to large-cap domestic consumer peers, Nestle (Malaysia) Bhd and QL Resources Bhd, which historically traded at 54 times, according to him.
“Despite being a retailer, MR DIY has displayed extremely resilient earnings and offers superior three-year profit compound annual growth rate (CAGR) of 30.2% versus its fast-moving consumer goods (FMCG) peers (10.3%),” he said.
In 2022, he said MR DIY is targeting for 180 stores, which should consist of 150 MR DIY outlets, 15 MR Dollar stores and 15 MR TOY stores.
“The store rollout will be in favour of MR DIY and MR DIY Express store formats, given their better economics which are skewed towards standalone stores,” he said.
He also noted that MR DIY earnings for the fourth quarter ended Dec 31, 2021 (4QFY21) were within expectations, despite disruptive heavy seasonal weather.
“Instead, easing restrictions led to impressive sales growth. Higher economies of scale cushioned slippage in gross margins with relative ease.
“With 2022 representing further recovery off a low base, combined with the anticipated record store openings, MR DIY is poised for attractive growth,” he added.
MR DIY told a bourse filing on Wednesday that its net profit for 4QFY21 grew by 24.28% to a record high of RM134.55 million from RM108.26 million in the same period of the previous year, on the back of a RM10.7 million gain in operating income during the quarter.
For FY21, its net profit increased by 28.08% to RM431.83 million, against RM337.16 million in FY20.
The company also declared a single-tier dividend of 0.9 sen per share, taking its total dividend declared for the financial year to 2.95 sen.
AmInvestment Bank analyst Muhammad Afif Zukaplly said in a note that he reiterated his "buy" call on MR DIY with a higher fair value (FV) of RM4.45, from RM4.15, based on a 2% upward revision of FY22-23 earnings.
The FV was based on PE pegged to 39.9 times to its FY22 EPS of 9.5 sen.
“Our revised FV also reflects the company’s near-to-medium term plan of continuing to focus on expanding MR DIY’s network, given its ability to deliver superior return,” said Muhammad Afif.
He continued to like MR DIY for its strong operating cash flow from its existing stores, proactive leadership of the management, and prospect of the new MR DIY Express store format.
The stronger 4QFY21 earnings, according to him, were mainly due to a growth in transactions and sales from the same stores, as well as basket size, thanks to the reopening of the economy in mid-August last year.
He also did not rule out the possibility of the company raising the prices of its products amid rising operational costs, but believes MR DIY may still be able to price its products relatively cheaper than its competitors, given its extensive store network and direct access to suppliers, which could cushion the impact on its transaction volume.
Meanwhile, RHB Research analyst Soong Wei Siang also said in a note that he maintains his “buy” call on MR DIY with an unchanged TP of RM4.59, which is based on FY22 PE of 39.58 times to EPS of 10 sen.
He continued to like MR DIY as a proxy to resilient domestic consumption — its three-year earnings compound annual growth rate (CAGR) of 22% will be anchored by the effective business model and entrenched brand equity.
“This should propel further valuation rerating, considering the scarcity of large-cap consumer stocks offering robust earnings growth,” he said.
Apart from the network expansion, he said that cost and operational efficiencies, as well as supply chain management will be the other areas of focus for management to drive growth, going forward.
“With the ongoing price lock campaign only ending in March, we believe MR DIY will maintain its selling prices, notwithstanding the higher input costs. This should render MR DIY market share gains and thereafter, the company will evaluate the situation before deciding on its pricing strategy. As such, the gross profit margin pressure is likely to persist into 1QFY22,” he said.
Hong Leong Investment Bank Research analyst Syifaa Mahsuri Ismail also maintained a "buy" call on MR DIY with an unchanged TP of RM4.51.
The TP is based on PE multiple of 50 times pegged to FY22 EPS of 9 sen.
“[T]he group strategy of clawing market share with price lock campaign has garnered positive feedback from the consumers,” she said in a note on Thursday, while maintaining its earnings forecasts.
Kenanga Investment Bank Research analyst Ahmad Ramzani Ramli, however, in a note on Thursday downgraded MR DIY call to market perform from outperform, as he opined that the stock is being fully-valued with uninspiring dividend yield.
Its TP is reduced to RM4, based on a FY22 price to earnings ratio (PER) of 37 times and EPS of 10.8 sen.
According to him, MR DIY FY21 results were in line despite margins suffering slight erosion, lower targeted stores and transaction/store/day.
“We expect FY22 to continue to be robust given the reopening of the economy (and) further expansion of stores, though margins are likely to be under pressure due to volatile input costs.
“We, however, revised down our FY22 earnings by 4% on lower average transaction/store/day estimate,” he said.
Affin Hwang Investment analyst Damia Othman, on the other hand, maintained a “hold” call on MR DIY in his note on Thursday.
He, however, revised up MR DIY TP to RM3.85 from RM3.39 pegged to a 45 times FY22 PE and EPS of 8.5 sen.
He also increased MR DIY’s earnings forecasts by 0.8%-3.6% for FY22 to FY23, after inputting the FY21 results into his model.
“With 60% of its stores located in malls, this may pose a threat to earnings over the near term as consumers are cautious over the rising number of Covid-19 cases,” he said.
At market close on Thursday, MR DIY slipped five sen or 1.32% to RM3.74, valuing the group at RM23.49 billion.