KUALA LUMPUR: RHB Research has initiated coverage on MR DIY Group Bhd with a "buy" as it expects its valuation to undergo a further rerating on a scarcity premium and potential inclusion in benchmark indexes.The research house forecasts FY20-22 net store additions of 130 175 and 175 inclusive of new store brands in Mr Dollar and Mr TOY."To capitalise on the underpenetrated home improvement retail sector and robust industry growth, Mr DIY is targeting to open at least 100 additional Mr DIY stores a year – leveraging on its impressive track record in opening profitable stores and achieving new store payback periods of "The network expansion should lift cost efficiency – taking into account the operating leverage – whilst brand visibility and awareness is likely to be furtherenhanced," said RHB.It forecasts a three-year core net profit CAGR of 25% to RM616mil in FY22 stemming from post-Covid-19 demand normalisation, outlet expansions, healthy same store sales growth and efficient cost management.RHB has a discounted cashflow-derived target price of RM3.20, which implies 39x FY21 price-earnings at about 25% premium over the regional peer average."We believe Mr DIY’s valuation will continue to rerate – on the scarcity premium to be ascribed accordingly, given the lack of sizeable-cap consumer retail stocks offering a similar growth profile."Also, the potential of the stock being included in major benchmark indexes such as the FBM KLCI and MSCI should raise further interest," it added.
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