KUALA LUMPUR: Mr DIY Group (M) Bhd's exposure to rising e-commerce competition such as China's Pinduoduo free shipping campaign is among the reasons that the stock has been underperforming, according to CGS International.
The firm also attributed the slowdown to lower foreign shareholding following its reclassification to the MSCI Malaysia Small Cap Index in May.
"While the market views Mr DIY as highly exposed to rising e-commerce competition, we believe Pinduoduo's appeal is largely confined to price-sensitive purchases where immediate product availability is less important," it said in a note.
Mr DIY's stock has dropped 24.84 per cent on a year-to-date basis and 33.14 per cent over the past 12 months.
CGS International said that Pinduoduo's free shipping is a short-term marketing subsidy funded by PDD Holdings, similar to its strategy in the US and Europe.
It estimated Pinduoduo's Malaysia e-commerce market share at between RM1 billion and RM3 billion per annum or 1.4 to 3.4 per cent, less than 0.4 per cent of Malaysia's total retail sales.
As Pinduoduo does not disclose country-level gross merchandise value, the firm derived its estimates using four public data points.
Given that Pinduoduo's Malaysian push only gained traction in between March and April 2026, it is assumed that Pinduoduo's taxable low-value goods imports will grow in a similar trend as last year and the platform captures between 20 per cent and 50 per cent of the RM5.8 billion increase, implying a gross merchandise value of between RM1.2 billion and RM2.89 billion for 2026.
"Based on our assumptions, Pinduoduo likely loses between RM1.53 and RM8.22 per item shipped to Malaysia and would require an average item value of between RM49 and RM163 to break even under our low- and base-case scenarios," it said in a note.
The firm noted that Mr DIY's second-quarter operations overlapped with Pinduoduo's viral period between March and April this year but Mr DIY's transactions rose 7.3 per cent year-on-year, with gross margin held at 47.4 per cent.
"In our view, stabilising transactions per store and basket value after the price lock expiry would ease investor concerns over Pinduoduo."
The firm added that the Malaysian government's potential introduction of the E-Commerce Bill in the next parliamentary session could benefit Mr DIY and other value retailers.
CGS International cut its core net profit forecasts for Mr DIY by 8.2 per cent in the financial years 2027 (FY27) and FY28. It expects Pinduoduo's free shipping campaign to weigh on transactions and basket size in the first half of 2027 (1H27), before the proposed E-Commerce Bill takes effect in 2H27.
This reduces its FY27 and FY28 revenue forecasts by 2.6 per cent each as the firm assumes no catch-up in lost sales once free shipping normalises.
CGS International kept its "Add" call on the stock with a lower target price of RM1.90.
© New Straits Times Press (M) Bhd