PETALING JAYA: RHB Investment Bank Bhd (RHB IB) has maintained its ‘buy’ call on MR DIY Group (M) Bhd (MR DIY) and raised the target price (TP) to RM2.40 from RM2.20.
In a research note, RHB IB highlighted the downside risks to this call, which include weaker-than-expected consumer sentiment and a sharp rise in operating costs.
RHB IB said MR DIY’s earnings growth is expected to remain robust, driven by its aggressive outlet expansion strategy, strong brand equity, and effective business model.
The investment bank added that MR DIY’s strong cash flow generation, along with the normalisation of inventory turnover, and capital expenditure (capex), should sustain its high dividend payout ratio of approximately 70%.
“Notwithstanding cautious consumer spending due to heightened inflationary pressures, MR DIY is well-positioned to benefit from any consumer downtrading, given its value-for-money product offerings and convenient locations.
“We also view MR DIY as a major proxy to capitalise on recent positive developments, including the salary increase for civil servants and the flexible Employees Provident Fund withdrawal scheme.
We believe that the beneficiaries of both proposals fall well within MR DIY’s customer base, it said.
To date, MR DIY has opened 79 net new stores, the majority of which are under its core MR DIY brand.
This slightly lags, accounting for 44% of the group’s target of 180 additional stores for the financial year 2024.
RHB IB also noted that the company’s new retail brand, KKV, a lifestyle retail chain from China could contribute to sustained long-term earnings growth and enhance return on equity, potentially acting as a catalyst for further share price appreciation after the year-to-date rally.
Yesterday, MR DIY announced that its net profit rose 3.25% to RM155.21 million in the second quarter ended June 30, 2024 (Q2 2024) from RM150.32 million in the same period last year, in line with higher revenue and gross profit, but partially offset by higher other operating expenses.
Revenue for the current quarter rose 8.8% to RM1.19 billion from RM1.09 billion previously, primarily driven by positive contributions from new stores.
“During the quarter, the group opened 42 net new stores, bringing the total store count as of the first half of 2024 to 1,340 stores, which marked an increase of 14.7% year-on-year (y-o-y) compared to the corresponding period in the previous year.
As at 2pm, its share price was down by 1 sen or 0.48% at RM2.09, giving the group a market capitalisation of RM 19.76 billion.
