Investment Highlights

• We maintain our BUY call on MR D.I.Y. Group (M) (MR DIY) with an unchanged fair value (FV) of RM4.48/share, using an unchanged PER of 38x on FY23F EPS. There is no adjustment to FV based on our 3-star rating.

• MR DIY’s 1QFY21 net profit of RM125mil came within our and consensus expectations, making up 24% and 25% of the full year’s forecast respectively.

• Net profit was bolstered by higher-than-expected store openings and increased sales per store, as well as savings from interest expenses.

• We are maintaining our earnings forecasts. While MR DIY’s faster-than-expected store openings are likely to provide positive earnings contribution, we are wary of the lacklustre performances of MR DOLLAR and MR TOY, as well as a possible retightening of pandemic restrictions in light of the recent spike in cases.

• MR DIY has declared a dividend of 0.8 sen for the quarter, in line with its 40% dividend payout policy.

• This quarter’s revenue came in at RM870mil (+63% YoY, +13% QoQ). The strong showing was due to higher sales per store as well as higher-than-expected store openings.

• We estimate that average revenue per store for the quarter to be RM1.14mil, a 31% YoY same store sales growth (SSSG). The higher SSSG is due to strong performance of standalone stores, as well as higher basket prices and transaction volumes.

• In 1QFY21, the group has opened 54 new outlets, well ahead of schedule to achieve its target of 175 store openings in FY21F. MR DIY said that it now intends to open at least >50 stores per quarter in FY21F.

• However, the quarter’s GP margin slid to 42.1% vs. the usual range of 43% to 44%. The squeeze in margin was due to higher import costs, freight costs, unfavourable RMB/MYR fluctuations and elevated manufacturer input costs, mostly as result of higher raw material prices.

• MR DOLLAR’s performance was not up to expectations. The segment is not making profits yet. The group believes that after it achieves a critical mass of stores, it can take advantage of economies of scale and has a higher leverage over suppliers.

• Similarly, MR TOY’s performance was not up to par. Mall outlets in general saw a weaker performance as compared to standalone stores. Given that the majority of MR TOY outlets are located within malls, the segment saw reduced transaction volume and footfall in general.

• We are ambivalent on the group’s new robotic warehouse. The group expects an increase in operational efficiency by 2x in terms of fulfilling online purchases. However, as online sales make up <1% of the group’s revenue only, we think that this endeavour may not provide significant benefits.

Source: AmInvest Research - 3 May 2021