KUALA LUMPUR (Aug 10): The rebound in Mr DIY Group (M) Bhd's share price from the recent low of RM1.37 just three days ago has gained further momentum, after the home improvement store operator reported an 11.19% year-on-year increase in net profit to RM150.32 million for the second quarter ended June 30, 2023 (2QFY2023).
The retailer also declared a dividend per share of 0.8 sen or RM75.5 million in total.
The stock hit an intraday high of RM1.57, before trimming its gains to close at RM1.55 on Thursday (Aug 10), 12 sen higher than its Wednesday’s closing price of RM1.43, valuing the group at RM14.62 billion.
Trading volume of the stock soared to 53.6 million shares, the highest level since May 31, making it the sixth most actively traded stock on Bursa Malaysia.
It is worth noting that Mr DIY's share price has been on a declining trend since April 2021 from its peak of RM2.77 before the recent rebound.
Kenanga Research said that Mr DIY’s first-half performance met expectations, with a moderating top line and recovering margins, as net profit accounted for 47% of the research house's full-year forecast, and 49% of the consensus estimate.
Kenanga upgraded its "market perform" call on the home improvement store operator to "outperform", saying "value has emerged after the recent weakness in its share price”, adding that the group is preferred for its strong gross profit margin of more than 40% compared with its peers' 32%, thanks to its strong bargaining position.
However, Kenanga maintained its target price (TP) at RM1.67, based on a FY2024 price-earnings ratio (PER) of 26 times, which is at a five times multiple premium to the best forward PER of Mr DIY's regional peers of 21 times.
The research house also maintained an upward revision of its gross margin assumption by two points to 45% for FY2023-24, offset by a cut in its same-store sales growth assumption for FY2023 to a drop of 7%.
Nevertheless, Kenanga cautioned that sales for Mr DIY will be challenging, with impending inflationary pressures and the reopening of businesses, as consumers in the bottom 40% household income group will have wider and cheaper alternatives, while the middle 40% will have a wider range of selections.
On the other hand, Hong Leong Investment Bank (HLIB) maintained both its "buy" call and TP of RM2.12, based on an unchanged 35 times PER pegged to FY2023 earnings per share, stating that Mr DIY’s performance was satisfactory and within expectations, as it accounted for 49% of his full-year forecast, and 48% of the consensus.
“We remain optimistic about the group’s strategy of store expansion to defend its market share as the leading home improvement retailer,” said HLIB.
HLIB further commented that it was encouraged by the improvement in the gross profit margin (+2 percentage points quarter-on-quarter; +5.3 ppts year-on-year), and Mr DIY is confident of achieving the target range of 43% to 44% of guidance with the combination of the full effect of price increases and easing freight cost.
Meanwhile, RHB Research, unlike the other research outfits, cut its initial TP of RM2.48 to RM2.29 for Mr DIY, but kept its "buy" rating, as the group’s results trailed its full-year forecast but met the street's projections.
RHB Research’s revised discounted-cash-flow-derived TP is based on 39 times FY2023 PER, aligning with the valuations ascribed to large-cap consumer peers.
The research house believes that the softer seasonality of the third quarter — a lack of festive seasons — will turn more favourable for Mr DIY moving forward, in view of normalising spending and a more comparable cost base, following the implementation of the new minimum wage in May 2022.
RHB Research trimmed its FY2023-25 forecasts by 4% to 7%, after updating its growth assumptions for Mr DIY.
“With consumer sentiment remaining soft, we expect Mr DIY to be more aggressive with promotional activities to stimulate consumer spending, leveraging cost savings from lower freight rates,” RHB Research expanded, adding that outlet expansion will be a key growth driver, as Mr DIY widens its reach in rural areas and customises store layouts to meet demand.