Founded in 2005, Mr D.I.Y. Group (M) Berhad (“Mr DIY”) (KLSE: MRDIY) has grown into Malaysia’s largest home improvement retailer with 670 stores in Malaysia and 4 stores in Brunei. With 10 categories – Hardware, Household, Electrical, Furnishing, Car Accessories, Stationery & Sports, Toys, Gifts, Computer & Mobile Accessories and Jewellery & Cosmetics – in each store, Mr DIY offers a wide selection of more than 16,600 types of products at ‘Always Low Prices’.

Mr DIY made a stellar debut on the Main Market of Bursa Malaysia on 26 October 2020, its shares climbed as much as 9.4% on its first trading day. The company’s initial public offering (IPO) is the largest listing on the Malaysian exchange this year and raised nearly RM1.5 billion from both institutional and retail investors. If you are looking at Mr DIY with interest, here are 10 things to know before you invest.  

1. Leader in Malaysia’s Home Improvement Retail Sector

Mr DIY is the clear market leader in Malaysia’s home improvement retail sector with an estimated 29.1% market share by revenue in 2019. Its store count of 640 stores as at 6 September 2020, easily outstrips its closest competitor, One Stop Superstore Sdn Bhd’s 83 stores. As one of the pioneer home improvement chain retailers in Malaysia, Mr DIY also has the widest array of product categories in the country.

R DIY Competitors

(Source: IPO prospectus)

2.  Comparison with other public listed peers

(Source: IPO prospectus)

Mr DIY seems to come out tops among selected public-listed ASEAN retailers with business interests in the home improvement sector. Not only has the company experienced the highest revenue growth, but it also has the highest net profit margin among its peers in 2019. 

3. The listed entity only comprises Mr DIY’s operations in Malaysia and Brunei 

Investors eyeing overseas expansion opportunities for Mr DIY will be disappointed to know that the listed entity only encompasses operations in Malaysia and Brunei. Instead, other regional stores are operated through separate entities owned by the company’s major shareholders. Nevertheless, Frost & Sullivan estimates the home improvement retail sector in Malaysia to grow at a compounded annual growth rate (CAGR) of 10.2% between 2019 and 2024. Hence, there is still ample room for Mr DIY to grow in Malaysia for the next few years. 

At present, the company operates 640 stores in Malaysia and 4 stores in Brunei under the “MR. D.I.Y. brand”, 24 stores in Peninsular Malaysia and 4 stores in Sabah and Sarawak under the “MR. TOY” brand and 2 stores in Peninsular Malaysia under the “MR. DOLLAR” brand. All stores are operated directly, and not through any franchise or agency arrangements. The following map shows the geographical distribution of the company’s store network. 

(Source: IPO prospectus)

4. E-commerce contribution is minimal 

Mr DIY launched its dedicated e-commerce website, www.mrdiy.com.my, in June 2018. Orders placed through the website are fulfilled through third-party delivery service providers. In addition, customers may choose to have their purchases delivered for “store-pickup” within 2 to 5 working days in 84 stores in the Klang Valley, Johor, Perak and Penang. Mr DIY intends to expand the “store-pickup” service to other regions in Malaysia as online sales to residents in such regions increase. 

The company also started offering its product on third party e-commerce retail platforms, such as Shopee and Lazada in November 2017 and November 2018 respectively. Products sold on these third-party e-commerce retail platforms are under the “MR.D.I.Y.” brand, allowing the company to leverage on the online customer base of these third-party retail platforms to increase its brand awareness and sales. 

Nevertheless, as sales from Mr DIY’s e-commerce website and third-party e-commerce retail platforms only accounted for 0.3% and 1.6% of the company’s total sales revenue for the financial year ended 31 December 2019 and the financial period ended 30 June 2020 respectively, there is much room for the company to grow its e-commerce channels.

5. How the IPO proceeds are used

Investors should note that gross proceeds from the public issue amounting to approximately RM300.0 million will be used for repayment of bank borrowings and defraying fees and expenses for the IPO and listing. Separately, proceeds from the offer for sale (institutional offering) of approximately RM1.2 billion will accrue entirely to selling shareholders. 

(Source: IPO prospectus)

The urgent need for the company to pare down its borrowings is not surprising since total borrowings has ballooned from approximately RM92.0 million (net gearing ratio of 0.05x) for the financial year ended 31 December 2018 to approximately RM608.9 million for the financial period ended 30 June 2020 (net gearing ratio of 0.74x). 

(Source: IPO prospectus)

6. Plans to grow store network

Notwithstanding its leadership position, the company has aggressive expansion plans to scale its store network by adding at least 100 “MR. D.I.Y.” stores in 2020 and approximately 100 additional “MR. D.I.Y.” stores in 2021 at an aggregate cost of approximately RM160.0 million per annum.

In addition, the company intends to open up 22 “MR. TOY” and up to 10 “MR. DOLLAR” stores in 2020 at an estimated aggregate cost of approximately RM34.0 million, as well as 25 “MR. TOY” stores and approximately 50 “MR. DOLLAR” stores in 2021 at an estimated aggregate cost of approximately RM84.0 million. 

The table below summarises the estimated aggregate cost of opening new stores for the periods indicated. The company has indicated that the expansions will be funded through internally generated funds and bank borrowings. The company has a target payback of 2 years on new stores.

(Source: IPO prospectus)

7. Same-Store Sales Growth (SSSG) is declining

SSSG is a measure of the growth in revenue generated by stores during a period compared to revenue generated by those same stores for the same duration in the immediately preceding year. This metric tracks the performance of each store and helps retailers ensure the opening of new outlets do not impact or cannibalize sales of existing outlets. Unfortunately, the company has reported a year-on-year decline in SSSG from 2017 to 2019 as it grew its store network which is a worrying sign.  

(Source: IPO prospectus)

8. Significant dividend distributions prior to IPO

Mr DIY has a target dividend payout ratio of 40% of its net profit attributable to shareholders which can be viewed as generous. However, since Mr DIY is in an expansion mode, we expect that most of the cash generated from its operations will be channelled back to grow its retail footprint. Investors should note that the company had rewarded its controlling shareholders with handsome dividends amounting to approximately RM133.0 million and RM501.7 million in 2018 and 2019 respectively, prior to the listing exercise. 

(Source: IPO prospectus)

9. Key directors and substantial shareholders 

Tan Yu Yeh is the founder of the business and Executive Vice Chairman of Mr DIY. Prior to his re-designation as Executive Vice Chairman on 19 May 2020, he was the company’s Co-Managing Director with Ong Chu Jin Adrian. Meanwhile, Tan Yu Wei is an Executive Vice President of the company, leading the logistics and procurement departments. Both men are the largest shareholders of the company with equity stakes of close to 50.6% upon listing. 

Creador Funds, through Hyptis Limited, is the second-largest shareholder in the company with an equity stake of 15.2% upon listing. Ong Chu Jin Adrian who is the Managing Director of Creador also serves as Mr DIY’s Non-Independent Executive Director and Chief Executive Officer. Together with Tan Yu Yeh, both men are jointly responsible for the company’s day-to-day operations with specific responsibilities in corporate management and affairs as well as financial oversight. Separately, Brahmal A/L Vasudevan, the founder and Chief Executive Officer of Creador also serves on the board of Mr DIY as a Non-Independent Non-Executive Director. 

Platinum Alphabet Sdn Bhd is another substantial shareholder of Mr DIY with an ownership stake of 6.9% post listing. The company’s shareholders, Gan Choon Leng, Tan Gaik Hoon and Toh Lay Fan, are all employees of Mr DIY. 

10. Future growth is priced into its current valuation  

With a closing share price of RM1.78 as at 4 November 2020, Mr DIY is trading at a price to earnings (PE) ratio of 38.9, with a market capitalisation close to RM11.2 billion. Historically, the company has achieved revenue growth of 36.1% and net profit growth of 23.0% from 2017 to 2019 (and these results were before the Covid-19 outbreak). Hence, investors need to be aware that plenty of growth has been priced into the company’s current share price, leaving very little margin for error. Now it is up to management to execute its business plans and deliver on its commitments. 

(Source: Google Finance)

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