The Star Malaysia - StarBiz
Mr DIY reveals some details
Firm plans 40% dividend payout but high IPO valuation poser remains
SOME details of Mr DIY, touted to be the year’s largest initial public offering (IPO), have been revealed in its draft prospectus published yesterday.
Among those details are a dividend payout plan to distribute out 40% of net profits, an aggressive store growth strategy of at least 100 new stores in 2020 and the plan to expand into new retail formats.
In an unprecedented move, Bursa Securities has also exempted Mr DIY from the minimum 25% public shareholding spread requirement for its IPO. Based on the draft proposal, the homegrown retailer is allowed to maintain a public float of 15%.
However, what draft prospectuses do not reveal is the pricing of the IPO.
In Mr DIY’S case, past reports have indicated that its promoters were seeking for a high valuation, going by the figure of Rm10bil.
Using the its earnings per share of 4.91 sen for the financial year of 2018, the company is going to an IPO at a historical price-earnings (PE) multiple of about 37 times.
However, IPOS are typically done benchmarked on future earnings.
Speaking with Starbizweek, a person familiar with the IPO deal says that Mr DIY’S forward PE will be lower than the historical valuation, as the earnings continue to grow.
However, he stopped short of mentioning the expected valuation for the IPO.
“We are still at the draft prospectus stage. The issue price for Mr DIY’S IPO will be finalised based on investors’ interest and willingness to pay, which will later decide on valuation,” he said.
A source says that Mr DIY’S PE valuation is comparable to its peers both in Malaysia and regionally. He also adds that the valuation is justified given the company’s earnings growth prospects.
Meanwhile, on the approval by Bursa Securities for Mr DIY to keep its public float at 15%, the source says this is the first time for the capital market regulator to do so.
He points out that Bursa Securities wanted to convince Mr DIY to list on Bursa Malaysia instead of a different stock market.
“The existing shareholders see great prospects for the company in the long-term and don’t want to reduce their stake too much.
“Given the potential IPO size of Mr DIY and its strong earnings growth ahead, Bursa Securities also doesn’t want to lose Mr DIY’S listing to another country. Hence, the lower public float was approved,” he tells Starbizweek.
Mr DIY is Malaysia’s leading home improvement retailer and sells over 20,000 types of products such as electrical, household and hardware items. Mr DIY has an estimated market share of 25.4% in 2018 in Malaysia.
The first DIY store was opened in 2005 and today, the company has 566 stores in Malaysia and four stores in Brunei. According to the draft proposal, more than 90% of its stores are profitable as of Aug 31, 2019.
Between the financial years of 2016 and 2018 (FY16-18), Mr DIY’S revenue has increased year-on-year at a compounded annual growth rate (CAGR) of 46.3% to Rm1.77bil. Meanwhile, its earnings before interest, tax, depreciation and amortisation has risen increased at a CAGR of 43 .2% to Rm530.3mil in the same period.
“During this period of growth, our EBITDA margins were at 31 .3%, 30.2% and 29.9% in FY16, FY17 and FY18, respectively,” the company stated.
Mr DIY plans to offer 941.49 million shares via its IPO, out of its 6.28 billion total outstanding ordinary shares,
This comprises an offer for sale of up to 564.89 million existing shares and a public issue of 376.60 million new shares.
Mr DIY is backed by private equity firm Creador, which is owned by investor Brahmal Vasudevan. Creador currently owns an 18% stake in the home improvement retailer.
Upon listing and the exercise of ESOS options, Creador’s equity interest will be reduced to 15.2%.
The majority shareholder of Mr DIY is Bee Family Ltd, which is co-owned by Mr DIY founder Tan Yu Yeh. Bee Family owns 54.3% in the company currently, which will be reduced to 50.8% after listing and the exercise of ESOS options.
While it is unknown how much Mr DIY plans to raise from the IPO, previous news reports indicate that the company might be eyeing an amount in the range of Rm1.5bil to Rm2bil.
Based on the draft prospectus, proceeds from the IPO will be used to repay bank borrowings, for working capital and to defray IPO expenses.
Mr DIY says that its total borrowings at present amounts to Rm625.7mil.
Meanwhile, the working capital will be used for initial inventory stocking of Mr DIY’S new stores and to defray expenses associated with the opening of new stores such as licences, legal fees, general advertising and promotional activities, among others.