Taiyou Nomachi
Firm Introduction
Mr D.I.Y. (OTC:MDIYF) is a Malaysian enterprise primarily centered on residence enchancment merchandise. That includes {hardware}, family items, electrical, automobile equipment, video games and presents, pc and handphone equipment amongst others, the corporate prides itself on being a low-cost one cease store for day-to-day necessities.
The $3.5B Malaysian residence enchancment specialist additionally operates an e-commerce enterprise to market and distribute its merchandise. That includes over 900 shops with every overlaying roughly 10,000 sq. toes of retail area, the corporate prides itself on lowest costs at all times, a large product vary, and handy purchasing areas.
Mr D.I.Y.
Typical Mr D.I.Y. retailer entrance in a Malaysian purchasing centre.
It has been a rag-to-riches story for Tan Yu Yeh and Yu Wei, the Malaysian entrepreneurs behinds the nation’s largest residence enchancment enterprise. They’ve created a globally acknowledged retail model and have become self-made millionaires within the course of.
Tan initially labored as an engineer with Komag then a stockbroker earlier than throwing all of it in to arrange his own residence {hardware} enterprise. They’ve performed properly. Mr D.I.Y., the colorfully branded residence enchancment retailer based in 2005, now employs 15,000 employees and has gross sales topping $900M. Tan & Yu at the moment are amongst Malaysia’s wealthiest households, with a complete web price of $2.4B.
The corporate’s imaginative and prescient is to develop into the most important residence enchancment retailer in Malaysia and Brunei, implying any funding is a focused wager on the well being of the Malaysian financial system. Presently, the corporate holds 38% market share of the Malaysian residence retail market with formidable initiatives to proceed to develop the enterprise accordingly.
We at ZMK capital have a bullish long-term (+5 years) outlook on Mr. D.I.Y. Regardless of a dampening of enterprise sentiment, matched with a decline in Malaysian GDP and a comparably excessive valuation for the Malaysian residence retailer (27x), we imagine the corporate’s relentless give attention to thrift, coupled with a low-cost Asia centric provide chain, and pure limitations to entry within the Malaysian home residence enchancment market places the agency in good stead to proceed progressing the enterprise.
Buying and selling View
Since flotation, the corporate’s inventory value has come beneath stress. Since late final yr, it has given up -19%.
Key Markets
A decline in foot visitors spurred by the SARS-Cov2 pandemic helped Mr D.I.Y. refocus on opening standalone shops. Over the previous few years, numbers of standalone shops have elevated noticeably (+45% FY2020 & +49% in FY2021) with a corresponding decline in mall based mostly venues.
This strategic choice offers the benefit of decrease working prices on the expense of decrease foot visitors. Given the model has now constructed vital renown in Malaysia danger affiliate with buyer fall-off charges is considerably mitigated.
The Family and furnishing class is Mr D.I.Y.’s essential income generator. In FY 2021, householding and furnishing dominated the advertising and marketing combine with 39% of gross sales, adopted by others +25%, {hardware} +18%, electrical +11% and stationery and sports activities +6%. Solely stationery & sports activities didn’t develop greater revenues on a yr over yr foundation. 70% of the corporations gross sales are imports from low price nations resembling China so the corporate stays particularly uncovered to weak point within the Malaysian Ringgit or resilience within the Chinese language Renminbi.
Mr D.I.Y.’s target market are thrift consumers in search of best-prices and selection at a handy location. That suggests that regardless of the discretionary nature of a number of the firm’s product traces, the Malaysian retailer stays comparatively properly hedged towards a widespread financial decline given their aggressive low-cost value technique.
Mr D.I.Y.
The shop community is made up of practically 1000 {hardware} stores with most of them within the central (Kuala Lumpur) and Southern (Johor Bahru) elements of Malaysia.
Financials
Mr D.I.Y.’s financials have gone from power to power. In 2016, the corporate had recorded gross sales of US $184M. For FY2022, that quantity was US $900M, propelled by double digit gross sales development throughout that point. Gross revenue margins are excessive given the corporate’s aggressive China centered Asia-centric procurement technique – over the previous 7 years, gross margins have been greater than 40% and present little indicators of abating.
FY2022 EBITDA tipped in at US $178M with the corporate constantly posting 20% EBITDA margins for the previous a number of years. At present Mr D.I.Y. has a market capitalization of US $3.79B, down significantly from post-pandemic highs of $5.6B.
Valuations stay lofty for the agency at 27x being one of many essential sticking factors to a robust purchase ranking at ZMK Capital. Debt has been prudently managed at circa US $370M predominantly devoted to retailer openings and a continued development technique. $30M of money is straight away on faucet and working money flows greater than cowl any near-term liquidity necessities. Mr D.I.Y. posted US $107M in web earnings FY2022.
A large enhance in receivables US +$31M (FY 2022) v US $2M a yr earlier requires additional investor scrutiny. Mr D.I.Y. has US $279M in retained earnings and complete debt of US $372M. Optimistic money circulation from operation (US $97.7M) has been pushed by a discount in inventories and the corporate continues to allocate capital prudently – in FY 2022 US $45M was devoted to capital expenditure.
Mr D.I.Y. has a coverage of buying leverage to gas development then roll it over by way of a number of obtainable traces of liquidity. US $46.5M in dividends have been paid in FY 2022 representing a 1.47% yield on a pay-out ratio of 43.18%. In abstract, the corporate stays extremely worthwhile, posting stable return on belongings (+14%), return on fairness (+36%), and return on complete capital (+16%).
Margins stay resilient and supply the low-cost retailer to entrance any outdoors aggressive entrance ought to new entrants transfer in on the Malaysian residence enchancment market. The corporate tends to gather money instantly, pay distributors on differed phrases however sits on a considerable amount of stock which means money conversion cycles stay excessive at 140 days.
Threat
One of many largest dangers surrounding an funding in Mr D.I.Y. is nation particular. The group solely has operations in Malaysia and Brunei with little ambition of shifting out of its retail consolation zone.
Its low price technique shelters it considerably from macro-economic volatility and a dampening of shopper sentiment but its predominantly import centered provide chain means international FX actions, and significantly a weakening of the Malaysian Ringgit, might have a significant affect of price of products offered.
The corporate holds vital inventories (US $250M) which might be uncovered to write-downs and readjustments which have a direct affect on each the steadiness sheet and earnings assertion.
Lastly, the corporate trades at 27x in an rising market throughout a interval of grim financial outlook. The availability chain is closely China centered which exposes Mr D.I.Y. to vital danger ought to geo-political volatility spike.
Key Takeaways
Mr D.I.Y. is a celebrated Malaysian retail model constructed by 2 budding Chinese language Malaysian entrepreneurs nearly 20 years in the past. It’s no frill strategy to offering lowest costs each time over a big product line as much as thrift in search of Malaysian shoppers has helped it construct a US $3.5B retailing empire touting gross sales of $900M.
Upward actions for the inventory are more likely to proceed with the one standalone damaging characteristic on the time period sheet is the 27x ahead earnings which is extraordinarily lofty for an rising market financial system. Appropriate just for long run holders completely satisfied to tackle Malaysian nation danger.
Editor’s Observe: This text discusses a number of securities that don’t commerce on a significant U.S. change. Please pay attention to the dangers related to these shares.
