Mr DIY in search of the next growth catalyst

 Home improvement chain operator is facing stiff competition from Chinese online retailers even as its store network approaches saturation.

Mr DIY’s store network is approaching structural maturity with average revenue per store declining every year since 2022.

PETALING JAYA:

Mr DIY Group (M) Bhd needs to find a new growth catalyst as it faces increasing competition from Chinese online retailers, and diminishing returns from its store network which is approaching saturation, a research house said.

AmInvestment Bank (AmInvest) said e-commerce penetration, aggressive Chinese entrants, and expanding value retailers are “raising the competition bar” for Malaysia’s largest home improvement retailer.

“Price sensitive consumers are shifting to e-commerce (Shopee/TikTok Shop) channels that run more than 30% cheaper on like-for-like items, with Malaysia’s TikTok shop reporting a 130% year-on-year sales growth.

“At the same time, aggressive Chinese entrants (Pinduoduo/Taobao) and value retailers (Eco-shop/Daiso) are amplifying competition,” it said in a note today.

AmInvest said Mr DIY’s store network is approaching “structural maturity”. Its network of outlets nationwide rose to 1,610 at end-June 2026 from 1,502 a year earlier.

It noted average revenue per store has declined every year since FY2022 and predicts cannibalisation will surface as same-store sales growth (SSSG) turns negative.

“The management’s target of 2,000 stores by FY2028 translates to circa 17,500 people per store nationally — already denser than Malaysia’s current network average and every comparable value retailer market we track. Our store mapping already shows around 77% store overlap (stores within 3km of each other).

“While management guides cannibalisation from new openings at only circa 1%, we are sceptical as the network is maturing past pure white-space expansion,” it added.

Shift towards value-creation

On a more positive note, AmInvest said the group’s shift towards value-creation is “encouraging”.

Rather than just relying on store count, it noted the management is optimising existing footprint with a membership programme, store-format refreshes, and selective expansion.

“We expect FY206F net new stores to miss the 155-store target guidance as management turns selective, focussing on sales density.

“In exchange, disciplined capital allocation enables a >100% payout ratio, translating to 5-6% dividend yield, paying you to wait while the growth story transforms to a value-creation story,” it added.

In its bourse filing yesterday, Mr DIY announced its second quarter net profit fell 15.2% as higher staff, utility and depreciation costs associated with the expanded store network eroded its earnings.

For the three months ended June 30 (Q2 FY2026), net profit dropped to RM134.41 million from RM158.58 million a year ago while revenue rose 3.6% to RM1.26 billion from RM1.21 billion.

For the six months ended June 30 (H1 FY2026), net profit was down 1.9% to RM326.43 million while revenue rose 6.5% to RM2.63 billion.

“Going into H2 FY2026, we expect soft sentiment, rising competition and higher raw material prices to weigh on performance. We remain on the sidelines until a clear catalyst emerges,” said AmInvest which has a “hold” call on the stock, with a lower target price of RM1.60.

The stock fell as much as 4% or six sen to RM1.46 before recovering to close unchanged at RM1.52, valuing the company at RM14.41 billion.

Mr DIY was listed in October 2020 in Malaysia’s largest IPO of the year, at a price of RM1.60. The company was co-founded by brothers Tan Yu Yeh and Tan Yu Wei, who opened their first hardware store in 2005. - FMT