IPO pegs Mr DIY as more valuable than a bank, a postal service provider and a tech company

This article first appeared in The Edge Malaysia Weekly, on October 19, 2020 - October 25, 2020.
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FOR Main-Market bound Mr DIY Group (M) Bhd, its market capitalisation of RM10 billion upon listing, based on its initial public offering (IPO) price of RM1.60 sen per share, will make it more valuable than the country’s airport operator and national postal service provider.

Malaysia Airports Holdings Bhd, which manages and operates 39 airports in Malaysia and one international airport in Istanbul, Turkey, has a market capitalisation of RM6.75 billion, after its share price almost halved year-to-date to RM4.07 from RM7.60.

As for Pos Malaysia Bhd, which has 1,000 touchpoints nationwide, its market capitalisation stands at RM602.74 million, based on its closing share price of 77 sen last Thursday. This means Mr DIY will have a market cap that is about 16 times Pos Malaysia’s.

In fact, a quick check with Bloomberg data showed Mr DIY is valued at more than the combined market capitalisation of Pos Malaysia and MAHB of RM7.35 billion.

The home improvement products retailer is also deemed more valuable than a banking group, namely AMMB Holdings Bhd or AmBank Group, which has a market capitalisation of RM8.67 billion.

It is valued higher than leading semiconductor test equipment maker Vitrox Corp Bhd, which has a market capitalisation of just over RM6 billion.


Mr DIY is also seen as worth more than each of the two listed brewers on Bursa Malaysia — Carlsberg Brewery Malaysia with a market capitalisation of RM5.78 billion, and Heineken Malaysia Bhd with RM5.75 billion — as well as the only tobacco player on the exchange, British American Tobacco (M) Bhd, which has a market capitalisation of RM2.88 billion.

This is despite the fact that these stocks are favoured dividend stocks. BAT, for example, despite suffering a decline in earnings due to a continually expanding illegal tobacco product market, has an indicative dividend yield of 9.6%.

Mr DIY’s market capitalisation upon listing will also surpass that of number forecast operator Berjaya Sports Toto Bhd’s RM2.7 billion, convenience chain store operator 7-Eleven Malaysia Holdings Bhd’s RM1.64 billion, retailer Aeon Co (M) Bhd’s RM1.06 billion, and dairy product maker Dutch Lady Milk Industries Bhd’s RM2.43 billion.

It is deemed to be worth only about 14.2% less than hilltop casino operator Genting Malaysia Bhd (GenM), which has a market capitalisation of RM11.42 billion now, and 16.7% less than GenM’s parent, Genting Bhd (RM11.67 billion) — the conglomerate whose business spans the hospitality, plantations, property and energy sectors.

Among other companies that have a higher market capitalisation than Mr DIY are: food and beverage player Fraser & Neave Holdings Bhd with RM11.88 billion; and national telecommunications infrastructure provider Telekom Malaysia Bhd with RM15.81 billion.

Analysts see upside to Mr DIY’s IPO

Despite the rich valuation, there are analysts who still see upside post listing, albeit fairly marginal. In a note last Monday, Inter-Pacific Research Sdn Bhd analyst David Lai recommended investors subscribe to Mr DIY’s ­initial public offering (IPO), based on its merits and outperformance against its Asean peers, which offer value in the longer-term.

Lai placed a fair value of RM1.85 on Mr DIY, based on a target price-to-earnings ratio (PER) of 27.5 times to its forecast earnings per share (EPS) of 6.7 sen for the calendar year 2021 (CY21).

“This translates to a potential upside of 17.1% from the IPO price, including dividends. We err on the side of caution and justify our lower PER valuation against Asean peers, based on Malaysia’s current political uncertainties, dampening foreign investor sentiment and suppressed PER valuation,” Lai said.

TA Securities Research’s Jeff Lye, meanwhile, placed a fair value of RM1.73 on Mr DIY, based on CY21 EPS of 6.9 sen, and a PER of 25 times.

“Considering the negative impact from the MCO (Movement Control Order) and the temporary closure of selected stores during March to May 2020, we forecast FY20 earnings to fall 18.0% to RM260.4 million, before jumping 66.5% and 22.2% in FY21 and FY22 to RM433.5 million and RM529.6 million respectively. The acceleration in FY21 and FY22 is supported by new store expansion,” Lye wrote in a note last Monday.

The largest IPO on Bursa in three years, Mr DIY is raising RM1.5 billion from its listing, from which RM1.2 billion will go to its promoters, while the rest will go towards debt repayments and listing expenses. This effectively means no or very little money raised from the IPO will be left for working capital going forward.

Mr DIY plans to have 900 stores across Malaysia and Brunei by end-2021, from the 674 it currently operates. It is set to debut on Oct 26.

Its institutional offering of 779 million shares was oversubscribed by 4.71 times while its retail offering — specifically for the Malaysian public — was just about fully subscribed at 0.07 times.

 

This story first appeared in The Edge CEO Morning Brief on Oct 16, and has been updated

 

See also “Mr Don’t Invest Yet” on Page 18

 

 

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