RHB Investment Research has maintained a “Buy” recommendation for Mr DIY Group with a target DECF derived trading price of RM4.59 from RM4.41. This is after incorporating a 4% premium in accordance with our in-house ESG overlay adjustments. The trading price implies 47x FY22F P/E, in line with the valuation we ascribed to other large-cap consumer peers.
The investment house said that it expects earnings to improve QoQ in 3Q21 in tandem with the easing in movement restrictions and trading limitations.
It expects to continue to like Mr DIY for its exciting 3-year net profit CAGR of 27%, underpinned by outlet expansions, established brand equity, and proven business model.
“There is a scarcity of large-cap consumer stocks that offer such growth prospects – hence, we believe the valuation premium is warranted, “the investment house said.
On the outlook of Mr DIY Group, it foresees sales rebounding progressively from June’s low as we understand the trading restrictions have been gradually relaxed in 3Q21.
As for its expansion, management has stood by its 175 net stores addition target – assuming the restrictions are broadly lifted in September – but the mix could be tweaked depending on the business environment.
Mr DIY is also banking on the introduction of new product stock keeping units or SKUs and rising contributions from private label products to mitigate the impact of higher sourcing costs. Beyond the near term, we believe the group will continue to chart robust earnings growth, driven by outlet expansion. On top of that, we believe Mr DIY, with its entrenched network of stores throughout Malaysia, will be a major proxy to capitalise on a recovery in consumer spending following the economic reopening post mass vaccination.
On the risks to its recommendation, it said that include prolonged lockdown enforcement and delays in vaccination progress.
