PETALING JAYA: UOB Kay Hian Research (UOBKH Research) sees strong first quarter 2024 (1Q24) performance for MR DIY Group (M) Bhd Given the strong outlook for retail sales.
Citing information from Retail Group Malaysia (RGM), the research agency said retail sales in 2024 are expected to grow by 4% year-on-year, up from 2.2% in 2023.
The research organization said, “Since same-store sales growth (SSSG) may be increasing significantly contrary to the stable profit outlook, this is a negative impact on MR DIY's performance in the first quarter of 2024 in terms of profit realization. “We think this could bode well for the future.”
Additionally, RGM expects growth to be 7.1% in Q1 FY24 due to festivals and school holidays.
UOBKH Research added that government cash transfers, strong foreign exchange and visa-free entry for visitors from China, which could boost tourism spending, could be a catalyst for retail sales growth.
The home improvement retailer will open its 55th MR DIY Plus store at IPC Shopping Center, boasting 28,000 square feet of floor space and 20,000 products.
UOBKH Research states, “MR DIY Plus stores generate an average of 80% higher SSSG compared to regular basic MR DIY stores.”
The research agency maintained a “buy” call on the company's stock, with a price target of RM2.10 and an upside rate of 40.9%.
Although consumer sentiment remains subdued due to concerns about high living costs, MR DIY should be one of the best placed to weather these headwinds given its leadership in the low-cost segment, the research firm said. added.
According to UOBKH Research, a major mitigation factor for fragile consumer sentiment could be the introduction of Employee Provident Fund (EPF) accounts3 that allow for flexible withdrawals.
“During the special withdrawal of EPF and government cash handouts during the pandemic, MR DIY was the standout beneficiary,” the research firm noted.
UOBKH Research said, “Despite being a large-cap stock, MR DIY continues to offer an attractive return of 15.8% per year compounded over three years.”
However, the research agency said MR DIY has potential FBM KLCI index exclusion risks.
According to UOBKH Research, Sunway Bhd. It seems poised to be included in the FBM KLCI index, as it ranks 25th in terms of market capitalization.
“Should Sunway maintain its 25th place in market capitalization with the lower market capitalization of MR DIY and AMMB Holdings Bhd?” Alternatively, another component may be excluded from the FBM KLCI index. ”