PETALING JAYA: The trimming of private equity firm Creador’s stake in Mr DIY Group (M) Bhd is no cause for concern and will have little impact on the home improvement retailer’s business, says Kenanga Research.
Creador Funds disposed of a block of 65 million shares on Feb 22, bringing its stake to 4.93%, held via Hyptis Ltd.
However, it still remains Mr DIY’s third-largest shareholder. Prior to the initial public offering in 2020, Creador had an 18% equity interest in the company before it was diluted to 15.3% upon the listing.
In contrast, Creador founder and CEO Brahmal Vasudevan increased his stake in Mr DIY to 0.064%, or six million shares, after acquiring 750,000 shares on the open market the previous Thursday, for RM1.26 million, or RM1.68 a share. He is also a director of Mr DIY.
Creador’s move is unlikely to influence the sentiments of other investors as the major shareholders and founders are still in the company, Kenanga analyst Ahmad Ramzani Ramli told FMT Business.
Group founder and executive vice-chairman Tan Yu Yeh remains the largest shareholder, with a 50.79% equity interest in the group held through Bee Family Ltd.
Tan opened the first store on Jalan Tuanku Abdul Rahman, Kuala Lumpur, in 2005 and has grown it to become the largest home improvement retailer with more than 900 stores across Malaysia and Brunei.
Share price stable
Since the trimming, Mr DIY’s share price has remained largely stable, rising slightly by 1.2% from RM1.68 on Feb 23 to RM1.70 last Friday, valuing the company at RM16 billion.
“The business is robust and resilient. The Malaysian home improvement market is still underpenetrated compared to its regional peers,” said Ramzani.
He said Mr DIY’s margins remain the best among the retailers, indicating long-run sustainable earnings.
Brahmal told a business weekly recently it was “normal for a long-time investor to take some profit of the table”, and that he continues to believe in Mr DIY’s prospects. His recent acquisition of more shares in the company is a reflection of that confidence.
“We have been a long-term investor in Mr DIY since 2016, for seven years. Mr DIY is adding more stores with growth in revenue and profit, so it is a sign that the business itself is in a very good position,” he said.
Kenanga maintains their “market perform” call on the stock from a previous note on Feb 15, with a target price of RM1.85, revised from RM2.00 previously.
“Dividends are likely to improve as earnings gain momentum and the build-up of stores taper off,” said Ramzani.
The call has found consensus from Hong Leong Investment Bank Research (HLIB). Analyst Syifaa’ Mahsuri Ismail maintained a “buy” call on the stock, with a target price of RM2.15, lowered from RM2.40
However, she said interest in the stock was contingent on meeting earnings expectations.
Net debt on the rise
For the financial year ended Dec 31, 2022 (FY2022), Mr DIY’s earnings met Kenanga’s expectations, though earnings for FY2023 were trimmed by 6% due to inflationary concerns.
The earnings forecasts consensus from Bloomberg indicates that Mr DIY may continue to post higher earnings of RM581.63 million in FY2023 and RM681.25 million in FY2024.
The group posted a net profit of RM473 million for FY2022, almost double from FY2017.
However, its debt situation needs monitoring. With gross borrowings of RM330.3 million and lower cash and bank balance, Mr DIY’s net debt came in much higher at RM192.4 million as at end-December 2022, compared with RM15.7 million a year ago. That is a 1,125.5% surge within a year.
This could be partly due to its rapid store network expansion. Since its IPO in 2020, its store network has grown by 82.1% from 593 at the beginning of 2020 to 1,080 as at the end of FY2022.
The group declared a dividend per share of 2.4 sen for FY2022, translating into a 12-month gross dividend yield of 2.19%.