Optimistic about the home improvement retailer’s prospects, analysts say they expect MR DIY to continue posting robust earnings growth for the next two years. PETALING JAYA: Several brokerages have raised their target prices for MR DIY Group (M) Bhd, following the company’s solid financial performance for the fourth quarter ended Dec 31,2020. Optimistic about the home improvement retailer’s prospects, analysts say they expect MR DIY to continue posting robust earnings growth for the next two years. UOB Kay Hian Research said despite the conditional movement control order (MCO) being implemented in the fourth quarter, MR DIY’s earnings continued to grow sequentially on strong demand. “Amid store growth off an apparent high base, store saturation and cannibalisation concerns, MR DIY continues to defy expectations, carving pockets of opportunity with its competitively priced products and operational excellence, backed by an experienced management team, ” the brokerage said in its report. The research firm expected MR DIY to post solid first-quarter 2021 earnings growth despite footfall and general activity being affected by the implementation of MCO 2.0 on Jan 11. It said the company’s topline and earnings growth was expected to be driven by its enlarged store base and demand resiliency, among others. It noted that the company’s easily recognisable brand with an extremely lean and efficient operating cost structure would allow its new stores to be immediately profitable. Maintaining its “buy”call on MR DIY, UOB Kay Hian raised its target price for the counter to RM4 from RM3.35 previously. This was based on an unchanged price-earning peg of 40 times estimated earnings for 2022. Similarly, RHB Research Institute also maintained its “buy” call on MR DIY, with a higher target price of RM3.95, implying 49 times the estimated earnings for 2021, compared with RM3.20 previously. “Looking ahead, the resilient business model will continue to churn sustainable earnings growth, driven by outlet expansion and same store sales growth (SSSG) on robust industry growth. “We believe the valuation gap between MR DIY and other large-cap consumer stocks will narrow in view of the former’s sound fundamentals, superior growth profile and potential inclusion into the FBM KLCI, ” it added. Meanwhile, Credit Suisse Research said MR DIY remained its top pick within the Malaysia consumer space, given its good earnings visibility as well as its large total addressable market, noting that the company continued to see good growth despite the lockdown disruptions. It maintained an “outperform” rating on MR DIY and raised the fair value to RM4.30 from RM4 previously. “We lift 2021-2023 earnings estimate by 2.6%-4.3%. We forecast a 4% SSSG in 2021, and 3% each year over 2022-2023. Our earnings forecasts culminate in a three-year earnings compounded annual growth rate of 30%, ” Credit Suisse said. CGS-CIMB Research noted that while the MCO 2.0 could negatively impact footfall in the first quarter of 2021, the impact on MR DIY was unlikely to be severe as less than 2% of its total store base were temporarily closed during this period. “Gross margin pressure could also arise from higher logistics costs due to heightened freight rates. Nonetheless we are still pencilling in 39% core net profit growth in 2021, as we expect cost pressure to ease in the second half of 2021 and average revenue per store to gradually recover to pre-pandemic levels by end-2021, in line with the gradual rollout of the Covid-19 vaccine in Malaysia, ” CGS-CIMB Research said. The brokerage raised its target price for MR DIY to RM3.95 from RM3.45 previously, with an unchanged “add” rating. The new target price was pegged a 2022 earnings multiple of 40 times, compared with 35 times previously, as the brokerage ascribed a 15% premium to the weighted average price-earning of Malaysian consumer sector. CGS-CIMB Research said this was justified by MR DIY’s solid execution track record, resilient growth outlook despite challenges to the retail sector and potential inclusion into indices (FBM KLCI and MSCI) which could further re-rate the stock.
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