This article first appeared in Capital, The Edge Malaysia Weekly on August 19, 2024 - August 25, 2024

Fair value: RM2.65 BUY

AMINVESTMENT BANK (AUG 14): The 1HFY24 earnings of RM300 million of Mr DIY Group (M) Bhd (KL:MRDIY) was largely within expectations, reflecting 46% of our full-year forecast and 47% of consensus estimates.

The group declared an interim dividend of 1.2 sen per share (payout: 72.9%) for 2QFY24, which brought 1HFY24 DPS to 2.2 sen per share — marking a significant year-on-year (y-o-y) increase of 57%.

Y-o-y, 1HFY24 revenue grew 9%, mainly driven by positive contributions from new stores, which grew 14.7% y-o-y, as well as a corresponding 14.4% y-o-y increase in total transactions to 90.4 million. In tandem with a stable gross margin of 45.7%, 1HFY24 net profit rose 7.9% y-o-y.

With 1,334 stores as at end-2QFY24, Mr DIY has met 44% of its target of 180 new stores in FY24F. The group aims to add up to 2,000 stores by 2028. The new store openings will be a mixture of its three core brands but will be skewed towards more Mr DIY flagship concept stores, with a focus on East Malaysia.

Moving forward, Mr DIY has formed a strategic partnership, effective from 2QFY24, with the acquisition of a 49% stake in KKV — a popular lifestyle retail brand catering for a young and trendy demographic. KKV stores generate over three times Mr DIY’s average monthly revenue. With three stores already operational and plans to open 10 more by end-FY24, this strategic move is expected to support the group’s earnings growth trajectory.

At an attractive FY25F PER of 27 times, the stock is trading below its historical two-year average of 34 times. We remain positive on the group’s revenue prospects for the near to medium term given the government’s plan to raise civil servants’ salary by 15% to 43% by the end of the year, which could add a substantial RM10 billion to domestic consumption spending.

We maintain a “buy” call on Mr DIY with a higher fair value of RM2.65 per share, from an earlier RM2.17 per share, by raising our terminal growth rate to 3% from 1.5% for our DCF. This implies FY25F PER of 34 times — on a par with its two-year average.

Target price: RM3.90 BUY

RHB RESEARCH (AUG 14): Kelington Group Bhd (KL:KGB) is slated to announce its 1H24 results on Aug 21. We expect the strong y-o-y and quarter-on-quarter (q-o-q) growth in revenue and core earnings to continue, supported by a solid RM1.3 billion order book (end-March) and favourable product mix. Its gross profit margin should remain at mid- to high-teen levels as ultra-high purity (UHP) projects made up 78% of its order book, while the production of the second liquid carbon dioxide plant (P2) is gaining traction, having commenced operations in late March.

We gather that new job wins exceeded RM500 million for 1H24, with the majority coming from China, where tenders are aplenty. While there have been some delays in the tender for Singapore projects, the company should still be on track to meet our RM1 billion order book replenishment target for FY24F.

The industrial gas (IG) segment’s new P2 plant (70,000 tonnes capacity) is expected to drive a new leg-up in earnings, with growth spurred by robust demand from markets in Oceania, Africa and India.

Our target price rises to RM3.90 with a 6% ESG premium baked in. This is premised on 23 times FY25F PER to reflect the semiconductor sector’s tailwinds, strong earnings delivery and robust IG growth.

Target price: RM1.32 BUY

MIDF RESEARCH (AUG 13): Pekat Group Bhd (KL:PEKAT) has secured a RM21.8 million project from Gamuda Engineering Sdn Bhd for subcontract works involving earthing and lightning protection (ELP) systems for the hyperscale data centre being built by Gamuda at Elmina Business Park.

The ELP works are expected to be completed in a year by Sept 30, 2025. We expect the bulk of the earnings to be booked in FY25. Meanwhile, part of the conditions for the subcontract require Pekat to deposit an unconditional and irrevocable on demand performance bond of RM2.2 million, or 10% of the contract sum in the form of a bank guarantee.

This latest win lifts Pekat’s outstanding order book to RM206.8 million, the bulk of which are rooftop solar projects. We expect this to grow to about RM320 million by 4QCY24 when it secures engineering, procurement, construction and commissioning (EPCC) jobs related to its Corporate Green Power Programme (CGPP).

We reiterate our “buy” recommendation, given Pekat’s consistent performance and bright prospects with favourable policies such as the CGPP, National Energy Transition Roadmap (NETR) and the fifth round of the Large Scale Solar programme (LSS5). We maintain our target price at RM1.32, pegging its FY25F EPS of 4.7 sen to a forward PER of 28 times, based on its three-year historical mean.

Target price: 28 sen NEUTRAL

PUBLIC INVESTMENT BANK RESEARCH (AUG 14): InNature Bhd (KL:INNATURE) announced that it had recently completed its acquisition of 100% equity interest in Blu Restaurant Sdn Bhd for a total purchase consideration of RM21.3 million. Blu Restaurant operates a Burger & Lobster (B&L) store in KLCC and has the exclusive rights to open and operate B&L restaurants in Malaysia (excluding the outlet in Genting), Indonesia and Vietnam. We gather that InNature is planning to open a new B&L restaurant in Jakarta in 2025. This foray should enable InNature to generate new revenue streams beyond beauty products.

Fears of a US economic slowdown are expected to further affect the already soft consumer consumption. In addition, we foresee weaker q-o-q earnings for InNature, given the absence of festivities, before seeing an uptick in sales in 4QFY24. Thus, we revise our earnings forecast for InNature downwards by an average of 7% for FY24-26F. However, the return of international tourists may cushion some impact of weaker consumer spending.

We maintain our “neutral” call on InNature, based on an SOP valuation target price of 28 sen. For its beauty products segment, we applied a PER of 13 times. As for its F&B retail business, we have ascribed a PER of 10 times.

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