KUALA LUMPUR (Aug 14): Mr DIY Group (M) Bhd’s (KL:MRDIY) earnings growth will likely get a boost from its investment in retail chain KKV, analysts said as they raised forecasts to include the new income for the home improvement retailer.

The company disclosed for the first time on Tuesday that it has invested RM9.6 million for a 49% stake in KKV’s operations in Malaysia in May. KKV, a lifestyle retail chain from China, has three stores in Malaysia, which generate more than triple the average monthly revenue of Mr DIY’s own stores.

The investment in KKV would allow Mr DIY to “diversify its revenue stream and drive growth via a new retail concept,” said CIMB Securities. “This is without risk of sales saturation from stores of its existing brands.”

The research house is raising its earnings forecast by between 2.2% and 3.4% for 2024-2026, to account for higher associate contribution following the acquisition in KKV, and maintained its “buy” call on Mr DIY.

Shares of Mr DIY — which sells everything from screwdrivers to instant noodles — have gained 43% so far this year, thanks to the robust results and as investors sought refuge in the defensive consumer sector to weather market volatility.

On Tuesday (Aug 13), Mr DIY reported a net profit of RM300.1 million for the first six months of 2024, which accounts for 47% of consensus full-year forecasts of RM641 million.

Broadly, analysts are bullish on Mr DIY, with 14 out of 15 research houses that are covering the stock, recommending “buy” and only one rating the stock as “hold”. The consensus 12-month target price is RM2.37, a potential 14% gain from its last price of RM2.08.

On its own, Mr DIY has more than 1,300 stores in Malaysia and Brunei at the end of June 2024. The company opened 79 new stores since the start of 2024, and had previously announced a plan to open a total of 180 by end-December.

The target is to roll out about 10 new stores by this year-end, retailing lifestyle products ranging from make-ups to toys. KKV has over 450 stores in its home market of China.

There is distinction in terms of target market and value proposition between Mr DIY and KKV, said RHB Investment Bank. Mr DIY targets mass markets with value-for-money products, while KKV aims to capture the spending of the “discerning and affluent consumers,” the house noted.

For CGS International, KKV could generate about an estimated RM1.8 million profit-after-tax per store annually.

“With Mr DIY’s experience in rolling out new retail stores and [its] ability to negotiate rental leases, we think the company will be able to roll out a further 50 stores” annually over 2025 and 2026, on top of the additional 10 stores to be opened by this year-end, the house said.

By 2026, the venture could contribute 16% of Mr DIY’s core net profit with 113 stores, CGS said.