I Took a Quick Look at my Mr DIY Analysis From 3 Years Ago… And Here’s What I Think Now
Disclaimer: This is for educational and information purposes. None of the content here should be interpreted as financial or investment advice. I bear no responsibility to any actions or decisions taken by anyone pertaining to this research.
October 2020. That is the month I wrote about Mr DIY here and here — a full two and a half years. What has happened since then? I did think Mr DIY was fairly valued at about RM1.60 back then when it went for an initial public offering.
So, I thought now will be a good time to revisit Mr DIY’s prospects and outlook and see whether it’s still a solid company. Stay tune as I have about 4 main points that I want to talk about regarding Mr DIY!
Well, Mr DIY share price is back at around RM1.60.
Yeap, the share price of Mr DIY is at RM1.66 currently. In hindsight, I wouldn’t say my valuation for Mr DIY here was a “I told you so” kind of moment. But it is disappointing to see that Mr DIY’s share price is back at where it was two and a half years ago.
Mr DIY’s best performance came in the early 2021 period when the Malaysian government ease some of its movement control restrictions. It rose by a whopping 57.1% from November 2020 to March 2021. However, since then, the share price has steadily declined over the two years. It is now just 3.7% above its listing price of RM1.60.
Financial performance has been pretty strong in the last 3 years… so what went wrong?
Mr DIY’s revenue grew by about 55.7% to RM4.0 billion in 2022 from 2020, while its net profits also grew by 40.3% to RM473 million in 2022 also. These are impressive numbers considering that Mr DIY has managed to grow its revenue and net profits at an average growth rate of 22.5% and 11.3% every year from 2018 to 2022. So, what went wrong then?
Well, investors expected more out of Mr DIY, when they first invested in them.
In 2020 and 2021, guess what was the price-to-earnings ratio of Mr DIY? A whopping 61.2 times and 55.9 times respectively. For context, a normal company has about 15 to 20 times PE ratio. For Mr DIY to trade at these levels of PE ratio means that investors expected Mr DIY’s profits to rise by 300% to 400% from their 2020 profits.
That has been disappointing as profits only rose by about 40.3% in these 2 years. Its revenue growth was impressive but ultimately investors found its profit margins disappointing also. Profit margins have been on a steady decline from 13.2% in 2020 to 11.9% in 2022. Hence, investors who were too bullish on Mr DIY’s growth began to withdraw from Mr DIY as they realise that its current pace of increasing its profits might be too slow for their liking.
It might take some time for Mr DIY to fully realise investor’s expectations
Let’s put it this way, I think Mr DIY is still a solid consumer stock that has quite a strong position in the market. If you are looking to buy anything, Mr DIY is your best bet to get them. It still has solid fundamentals in that regard. It’s just that its expansion plan of building more Mr DIY stores could take a longer time.
Mr DIY’s revenue and profits are still expected to continue growing next year with its plans to offer 180 stores in 2023. However, the pace at which it does so is up for debate. Investors have gotten it wrong in the past 2 years on this and I think a price-to-earnings ratio of 33.1 times currently is just about right. There could be some scope for PE ratio to rise to about 40 times but this would have to wait. Most market analysts are projecting a target share price of RM2.26 compared to the current share price of RM1.66. This implies a high upside of 36.3%.
It could be attractive for people who are confident in Mr DIY’s prospects to invest now considering that it is close to the listing price of RM1.60.