KUALA LUMPUR (Oct 9): Shares in MR DIY Group (M) Bhd (KL:MRDIY) continued their rally on Wednesday, adding approximately RM7 billion to its market capitalisation year-to-date, with analysts remaining bullish on the stock’s upside potential.

MR DIY rose as much as nine sen or 4.23% to an intraday high of RM2.22 before paring some gains to close at RM2.17, still up four sen or 1.88% from previous trading day, giving the group a market capitalisation of RM20.52 billion.

Year-to-date, the stock has risen by 52.4%.

Trading volume surged to over 26.9 million shares, surpassing its 90-day average of 10.21 million shares, making it one of the top 20 most actively traded stocks on Bursa Malaysia.

At RM2.17, MR DIY is trading at a price-to-earnings (P/E) multiple of 35.23 times, compared with its historical range of 36.6 times.

“We believe that a P/E ratio of 35x for MR DIY is fair and justified, considering the company’s leading position in Malaysia's home improvement and retail sectors,” BIMB Securities told The Edge.

The research house said MR DIY’s steady store expansion and its investment in KKV, a lifestyle retail chain from China, are factors contributing to further upside potential.

“We also expect MR DIY to benefit from a potential increase in consumer spending due to the EPF Account 3 withdrawals and the civil servant wage hike, given the company's value-for-money products and an average basket size of RM26,” BIMB added.

Affin Hwang Investment Bank echoed this sentiment, stating that it is common for large-cap consumer stocks in Malaysia to trade at higher P/E multiples, averaging around 30 times, largely due to the scarcity of large-cap consumer options in the country.

The research house also noted similarities between MR DIY and 99 Speed Mart Retail Holdings Bhd (KL:99SMART), which was listed in September. Both companies operate retail chain models and rely on store expansions for revenue growth.

Affin Hwang upgraded MR DIY to a 'buy' rating with a higher discounted cash flow (DCF)-based target price of RM2.50, up from RM1.97, implying a 30 times P/E ratio for 2025.

Among the 15 analysts tracking the stock, 13 have 'buy' ratings, while two recommend 'hold'. The 12-month average target price stands at RM2.41, according to Bloomberg data, with 13 analysts revising their target prices upward since the company's last earnings announcement in August.

For the second quarter ended June 30, 2024 (2QFY2024), MR DIY’s revenue rose to RM1.2 billion, up 8.7% from the same period last year, while its net profit inched up 3.2% to RM155.2 million.

Affin Hwang also expects MR DIY to benefit from a stronger ringgit against the Chinese yuan, as 60% to 70% of its products are sourced from China.

For every 1% appreciation in the ringgit, earnings could increase by 2% to 3%, according to the research house, which also raised its gross profit margin forecasts for 2025 and 2026 to 47.5%, up from 44.5% and 44.0%, respectively.