Case Study: Initial Public Offering of Ordinary Shares of Mr. DIY Bhd

This is a case study on a company [Mr. DIY Group (M) Bhd] principally engaged in low-cost retailing for Home Improvement (Hardware, Household, Electrical, Furnishing, Car Accessories, Stationery & Sports, Toys, Gifts, Computer & Mobile Accessories, and Jewellery & Cosmetics). The company is in the process of raising funds from the capital market through the issuance of new shares and offers for the sale of existing shares. The prospectus was issued on 6^th October 2020.  To ensure the success of the subscription of the shares, the owners and management intend to conduct a roadshow for all categories of investors as well as to the analyst.

YOUR TASKS:

You are the Chief Investment Officer of an International Investment Firm. You are required to analyze the largest IPO on Bursa for the last 3 years and prepare a recommendation to your management/board to accept or reject the investment for the said IPO.  You need to review the prospectus (a summary of the prospectus is attached and please read the full prospectus from Bursa Malaysia or the company’s website) as well as all other available information. Useful information especially from class lectures; news reports, selected reading materials as well as each group member’s diversified experience and academic background will definitely help the students to make an informed decision on the investment choices available. The company will be listed on the main market of Bursa Malaysia very soon and all information regarding the prospect and performance of the company is available on Bursa’s website, the business section of major newspapers, and the company’s website.

The purpose of the study is to improve the understanding of students especially on EquityAnalysis (stock valuation)  and portfolio management as well as the application of finance theories to the fund-raising exercise. The case study will be in a form of an individual project and to ensure that the exercise achieves its intended objective, compulsory participation is required from all the students.

The assignment requires the students to perform the following:

1. Understand the business operation, climate, and the economic environment and compare with the competitors;
2. Understand the purpose of fund-raising (i.e. IPO);

• Understand the company’s financial position and do a simple financial analysis and comparative evaluation;

1. Understand the purpose of making your investment and what is your strategies;
2. The return and risk and benchmark against other indicators;
3. Indicative valuation of fair value; and

• Broad understanding of the financial markets

Required:

1. Put up a MEMO (as real and as business-like as possible) on your analysis, findings and recommendation i.e., to subscribe or reject the share offering to your Top Management/Board for approval.

2. The MEMO should contain but not limited to the followings:

1. Format and Purpose (10 Marks)
2. Executive Summary (10 Marks)

• Background (20 Marks)

1. Method of Analysis, Findings and Comments (35 Marks)
2. Recommendation and Justifications (20 Marks)
3. References (5 Marks)

Summary of the IPO’s prospectus 

Home improvement retailer Mr. DIY Group (M) Bhd, whose shares are valued at a price-to-earnings ratio of 31.6 times, is raising a total of RM1.5 billion from its Main Market listing exercise at RM1.60 per share.

This will be the largest initial public offering (IPO) on Bursa Malaysia in three years. Based on the issue price of RM1.60 per share, Mr. DIY is valued at a market capitalisation of RM10 billion — higher than several public-listed banks on Bursa Malaysia, including AmBank Bhd and Alliance Bank Bhd.

Of the total, a whopping RM1.2 billion will go to the promoters who are offering to sell their shares, according to its prospectus on Bursa Malaysia.

Its promoters are Bee Family Ltd, Tan Yu Yeh, Tan Yu Wei, Yeh Family (PTC) Ltd, WEI Future Capital Ltd, Hyptis, which holds three Creador funds, and Platinum Alphabet. Prior to the listing exercise, Bee Family held a 52.6% stake, Hyptis 18%, and Platinum Alphabet 7.1%.

Meanwhile, the remaining RM301.44 million raised through the issue of new shares by the listed entity will be utilised for debt repayments (RM276.14 million) and the covering of IPO fees and expenses (RM25.3 million).

As of June 30, the retail group’s total borrowings stood at RM608.85 million, giving it a gearing ratio of 1.34 times. Upon listing, its gearing will drop to 0.22 times with borrowings of RM153.85 million.

The group’s IPO comprises an offering of up to 941.49 million shares, of which 779.95 million shares are part of the institutional offering and 161.53 million shares are under the retail offering portion.

Datuk Azlam Shah Alias chairs the board as non-executive chairman, while its executive directors are Tan Yu Yeh, who is also executive vice-chairman, and CEO Adrian Ong Chu Jin.

Its non-executive directors are Brahmal Vasudevan, who is the founder and CEO of Creador, Ng Ing Peng, and Leng Choo Yin.

For the financial year ended Dec 31, 2019 (FY19), Mr. DIY posted a net profit of RM317.57 million, a 14% year-on-year increase from RM308.33 million.

Its revenue increased to RM2.28 billion in FY19 from RM1.77 billion a year earlier.

The group also highlighted the impact of the Covid-19 pandemic on its operations, which resulted in lower revenue for March and April 2020 as it had to close all its stores by March 22.

The group resumed operations of some of its outlets in April, although the stores were permitted to operate for a limited number of hours in accordance with requirements by the authorities. Its operations have fully resumed by May 31, amid the implementation of the Conditional Movement Control Order (CMCO).`

Answers on Mr. DIY Bhd Case Study

Initial public offering (IPO) is an important way of raising funds by a company. The given case analysis of Bursa Malaysia indicates that the company is in the process of raising funds through IPO. Before undertaking an important investment decision in the given IPO, it is important to analyse this IPO by way of evaluating the prospectus and the necessary information available about the IPO. The analysis therefore focuses on presenting the findings of the entire analysis in a memo format including the description of main purpose, background details about the IPO, and the method applied in order to collect data and analysis of its findings, and finally the recommendation as to whether the investment on the given IPO should be accepted or rejected.

Format and Purpose: