Valuation catch-up for MR DIY supports higher price trend

MR DIY Group (M) Bhd experienced an unexpected decline in samestore sales growth in 3Q24, which triggered a knee-jerk selloff in its share price. But, a positive narrative of a stronger consumption outlook for 2025 has led to investors buying the dip.

Improved consumer sentiment is expected this year, driven by stronger disposable income. This would stem from the upcoming minimum wage hike, effective February 2025 and civil servant salary adjustments, which took effect in December 2024.

Private consumption growth is likely to continue rising, accelerating by 5.8% in 2025, up from 5.3% in 2024 and 4.7% in 2023. This is supported by MR DIY’s ambitious target of 190 new store openings for FY25, exceeding its usual range of 175–180. This includes management’s guidance of more than 20 new KKV stores in FY25, following their strong performance.

These large-format KKV stores, with an average size of 15,000 sqft compared to 10,000 sqft for regular MR DIY outlets, generate three times the average monthly revenue, mainly due to their higher priced product offerings.

The company is anticipated to generate earnings growth of 16% in FY25 versus FY24 estimate of 7.8% and the five-year historical average of 12.4%. The recent share price weakness presents a compelling opportunity for investors to buy the dip and position for the anticipated growth ahead.

At RM1.87, MR DIY is trading at an undemanding FY26 P/E of 25x, representing a 19% and 32% discount to its 5-year average of 31x and 99 Speed Mart Retail Holdings Bhd’s FY25 P/E of 37x.

Given MR DIY’s strong earnings growth trajectory, supported by improving disposable income trends, analysts believe the current valuation is unjustifiable.

There could be a valuation catch-up for MR DIY based on the significant valuation divergence between MR DIY and 99 Speed Mart, coupled with the discount to its historical average.