Mr DIY plans 40% dividend payout post-IPO, to submit draft prospectus soon

TheEdge Mon, Jun 03, 2019 05:00pm - 4 years View Original


MR DIY will be submitting its draft prospectus to Securities Commission Malaysia as early as next month for an initial public offering and plans to pay out at least 40% of its net profit in dividends post-listing, say sources familiar with the matter.

“The company is on track for a listing in November, with a valuation of RM10 billion to RM11 billion. The existing shareholders are looking to sell about 15% to create a public float, including an ESOS (employee share option scheme) option. One of its major shareholders, private equity firm Creador, plans to divest slightly more than 2% and will continue to hold a 15% stake in the home improvement company post-listing,” says a source.

Mr DIY offers more than 20,000 types of products, including household, electrical, hardware and home improvement items, at affordable prices.

“Earnings grew 45% to cross RM300 million in the year ended December 2018. Following the previous growth trend and barring any unforeseen events, earnings could grow 30% per annum to about RM380 million to RM390 million in 2019 and RM450 million in 2020. As such, PE (price-earnings) multiples based on 2020 earnings will be 24 to 26 times.

“There are plans to add 10 stores a month in Malaysia, or 120 stores a year. Same-store sales growth is 6% despite new store openings. By the end of this year, Mr DIY will have over 500 stores in Malaysia. The retail online shift does not seem to have impacted its earnings as the average basket of goods a customer spends per store comes up to about RM20 — and demand for the market segment continues to thrive when it comes to physical stores,” adds the source.

When contacted, Creador founder and CEO Brahmal Vasudevan declined to comment on the matter.

Home improvement retailers in the region, such as Thailand-listed Home Product Centre Public Company Ltd and the Philippines’ Wilcon Depot trade at forward PE multiples of 32 to 34 times. On Bursa Malaysia, retail players such as 7-Eleven Malaysia Holdings Bhd and myNews Holdings Bhd are trading at forward PE of 32 and 28 times respectively.

“This reflects the growth and lower risk of these franchises because of repeat purchases and brand loyalty,” says a finance executive.

Be that as it may, the IPO market has not been rosy.

Just over a week into its re-listing on Bursa on May 16, Leong Hup International Bhd saw its shares trading 5% below its IPO price of RM1.10 to end at RM1.04 last Friday.

The integrated poultry player has seen its stabilising manager, Maybank Investment Bank Bhd (Maybank IB), undertake a series of stabilising actions since its listing on the Main Market.

The group ended the day flat at its IPO price on its debut as overall market sentiment remained cautious amid escalating US-China trade tensions.

Maybank IB had, since Leong Hup’s RM1.03 billion listing on May 16, undertaken five stabilising actions up until May 24. A stabilising action is the purchase of stock by underwriters to stabilise or support the market price of a security immediately following an IPO.

The investment bank took its first stabilising action on the day of the IPO itself, buying five million shares at an average price of RM1.10 each. It then acquired four million shares at RM1.0721 each on May 17, followed by 10.42 million shares at RM1.0395 on May 21 and 25.4 million shares at RM1.0310 on May 23. Last Friday, Maybank IB bought another nine million shares at RM1.03 each on average.

Is the fall in the shares of Leong Hup — the biggest listing on Bursa in almost two years — below its IPO price in over a week a sign of things to come for upcoming IPOs such as Mr DIY?

Investment bankers and analysts believe it boils down to the valuation of a company as well as the earnings prospects of the industry it is involved in.

“From an investor’s perspective, they will put in money looking at the valuation, yield and growth potential ... it is tough to compare the two like-for-like as both companies are from different industries,” says an investment banker with a foreign bank.

A head of research at a foreign bank concurs, saying that he expects “demand for Mr DIY to be good” given that it is in the mass retail segment.

A banker with a local investment bank points out that apart from being in different industries, Leong Hup is a relisting while Mr DIY is a new listing. “So, it is not exactly comparing apple with apple,” he says.

A finance executive adds, “The performance of a stock is usually driven by three factors — its growth rate, its return on equity that measures the profitability of the company, and the risks.”

It is also still early days when it comes to Leong Hup’s IPO, say bankers.

“Investor sentiment for the stock may just change,” says the banker with the local investment bank.

From an earnings perspective, the company is growing. Leong Hup’s net profit for its first quarter ended March rose 15% year on year to RM60.6 million on higher sales volume and an increase in the selling price of eggs in Malaysia and broiler chicks in Indonesia.

Leong Hup is one of the largest integrated poultry, egg and livestock feed producers in Southeast Asia, with businesses in five countries in the region. It has said it would like to look at food processing in Indonesia and Malaysia as a potential new business.

It is worth noting that QSR Brands (M) Holdings Bhd announced last month that it had deferred its IPO, initially slated for the first half of the year.

QSR Brands operates 820 KFC restaurants in Malaysia, Singapore, Brunei and Cambodia. It also runs the Pizza Hut franchise in Malaysia and Singapore.

 

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