The Borneo Post (Sabah)
Analysts optimistic about MR DIY’s earnings outlook
KUALA LUMPUR: MR D.I.Y. Group (M) Bhd’s (MR DIY) earnings outlook garnered positive views from analysts as they believe the group’s performance will continue to be driven by its expansion plans, quick store breakeven periods, and a recovery in pandemic restrictions.
“We are optimistic on MR DIY’s future earnings outlook, given its unrivalled gross profit margins of circa 43 per cent, expansion into less urban areas, quick store breakeven periods of less than two years and expected success of its multi-store format.
“Also, a recovery in pandemic restrictions will improve footfall and the transaction volume of high-margin stationery and sports equipment items,” said the research team at AmInvestment Bank Bhd (AmInvestment) in a report.
It also believed that MR DIY’s first quarter of the financial year 2021 (1QFY21) performance would only be mildly affected by the latest MCO as more than 95 per cent of the group’s outlets remained opened.
“On the flip side, the group has seen a lower volume of transactions during the MCO as result of lower footfall. Some mitigation may come in the form of a higher basket size as customers aim to make less trips,” it noted.
Aside from that, AmInvestment expect a stronger contribution from its high-margin stationery and sports segment due to a gradual relaxation of MCO restrictions and a reopening of schools.
It pointed out that the segment yields the second-highest gross profit margin of circa 46 per cent.
“We expect it to return to prepandemic levels of circa 10 per cent of revenue, a er falling to circa seven per cent in FY20,” it added.
All in, it reaffirmed its gross profit margin forecast of 43 per cent for FY21.
“We believe that costs of goods will not fluctuate too much, as MR DIY has made a empts to reduce currency risk against China’s yuan. While it has not hedged its currency exposure, it has reduced its China imports from 74.3 per cent in 1HFY20 to 70.8 per cent at end-FY20.
“Going forward, we do not expect any significant change to this value, as a empts at alternative sourcing may not be competitive.
“Thus, no major shake-up in expenses expected. Yearly expenses are allocated as a percentage to revenue. With cost of sales, the largest contributor to group costs, having reduced exposure to currency fluctuation, the group does not envisage any significant changes in the coming years,” it explained.
In terms of cost reduction, it said, MR DIY is currently optimising more energy-efficient methods to save on utilities costs, but its effect is unlikely to be material.
Meanwhile, it believed that contribution from e-commerce channels will remain immaterial.
“Aside from sudden spikes during periods of movement lockdown, the average monthly figure remains less than RM1 million. MR DIY believes this is because the products are cheaply priced and abundantly found.
“As a result, customers prefer to pay and handle the products in person rather than ordering online,” AmInvestment said.
Overall, the research team maintained its ‘buy’ call on the stock. It also believe that there is a strong possibility that MR DIY could be included in the FBM KLCI, as well as for its recovery prospects as pandemic restrictions begin to wane.
“Except for Home Product Centre PCL in Thailand’s SET 50, none of its regional peers are included in their local equivalents. Additionally, MR DIY has the scarcity premium of being the sole large market cap player in the affordable home improvement retailer category,” it said.