RHB Research expects a stronger 2H24 showing by MR DIY on seasonal factors and rising contribution from KKV.
PETALING JAYA: MR DIY Group (M) Bhd
’s store expansion and growth of associate KKV Malaysia is set to drive its earnings growth after posting first half (1H24) financial numbers that met analysts’ expectations.
The retailer posted a net profit of RM300mil for 1H24, which was 8% higher year-on-year (y-o-y) as revenue rose 9% y-o-y to RM2.3bil, driven primarily by its net store additions of 172 to take its total outlet count to 1,340 stores across the country.
Analysts raised their target price and forecasts on the hardware retailer following the strong performance, but the focus now is on how KKV Supply Chain Sdn Bhd’s (KKV) expansion would drive MR DIY’s prospects.
RHB Research expects a stronger 2H24 showing by MR DIY on seasonal factors and rising contribution from KKV.
“We raise our financial year 2024 to 2026 earnings by 1%, 3% and 5%, respectively, after factoring in the associate earnings from KKV,” the research house stated in a report on the retailer.
It is projecting KKV to contribute earnings of RM7mil, RM26mil and RM53mil based on store numbers of 13, 35, 60 over MR DIY’s FY24-FY26.
MR DIY acquired a 49% stake in KKV for RM9.6mil in May. KKV is one of China’s largest lifestyle retailers, offering over 20,000 types of trendy lifestyle products in its Malaysian stores.
It now operates three stores in Malaysia but there are plans to open another 10 stores in 2H24, in addition to the 180 new MR DIY stores planned for 2024.
That aside, MR DIY announced a second quarter (2Q24) dividend of 1.2 sen a share, which took the 1H24 total dividend to 2.2 sen, representing a payout rate of 69% of earnings.
This was above MR DIY’s target payout of about 50% to 65%, supported by its net cash position of RM27mil as of June 30, 2024 and healthy operating cashflow, CGS International Research (CGSI Research) noted.
“Management said it hoped to at least maintain this payout ratio in the foreseeable future. We currently assume payout ratios of 65%, 70% and 70% in FY24, FY25 and FY26, respectively,” the research house highlighted.
CGSI Research added despite the additional capital expenditure (capex) required to roll out new KKV stores, MR DIY’s healthy operating cashflow and net cash balance sheet would allow it to fund part of the capex via debt and still have room to raise dividend payout ratios.
The research house maintained its “add” call on MR DIY but raised its target price to RM2.65 a share, as it remained confident of the retailer’s growth trajectory.
RHB Research also maintained its “buy” call on MR DIY with a higher target price of RM2.40 per share, from RM2.20, after rolling over its valuation base year to FY25.
The target price implies a 30 times FY25 price-earnings multiple and close to the stock’s three-year mean.
Kenanga Research, meanwhile, kept its FY24 forecast for MR DIY unchanged but raised its FY25 earnings by 3% on improved margins.
It raised its target price for the retailer to RM2.27 a share from RM1.97 and upgraded its call to “outperform” from “market perform”.
