Investment Highlights

• We reiterate our BUY call with a higher fair value of RM4.45 (from RM4.15), based on revised earnings. We continue to like MR D.I.Y. Group (MR DIY) for its strong operating cash flow from its existing stores, proactive leadership of the management, and prospect of the new store format, MR D.I.Y. Express.

• MR DIY’s 4Q21 net profit of RM134.6mil (+49% QoQ, +24% YoY) came in above our expectation but within consensus’. The company’s 2021 earnings of RM431.8mil (+28% YoY) accounted for 105% and 99% of our and consensus estimates, respectively. The stronger earnings were mainly attributed to an increase in the number of transactions, higher sales from the same stores, and basket size, due to the reopening of the economy starting mid-August last year.
  The company recorded a higher revenue of RM3,373.4mil (+32% YoY) in 2021, underpinned by an 11.2% same-store sales growth (SSSG) (adjusted SSSG: 0.5%) and net additional 166 new stores. MR DIY’s PAT margin fell 0.4 ppt due to higher freight and input costs, after being partially offset by lower interest expense following repayment of borrowings.

• Continue to leverage MR DIY. stores to deliver growth. Even after the reopening of the economy, the company will continue to prioritize growing the MR DIY stores network due to its proven track record and more stable income-generating capability. It will continue to open MR. TOY and MR. DOLLAR new stores, albeit at a slower pace. Out of 180 new stores targeted for 2022, 20 to 30 stores will be MR. DOLLAR and MR. TOY’s with the remaining expected to be MR DIY’s (90% will be MR DIY flagship stores, 10% will be in MR DIY Express).
• Managing rising operational costs. Besides leveraging its data analytics capability to constantly optimize its product offerings, the company may look into negotiating with its suppliers to increase the volume of inventory purchases while bringing down the price per product.
  We also will not rule out the possibility of the company passing the additional cost to end consumers by increasing the prices of its products. Even with the price increase, MR DIY may still be able to price its products relatively cheaper compared to competitors given its extensive store network and direct access to suppliers which could cushion the impact on its transaction volume.
• Dividend. The company declared an interim dividend of 0.90 sen per share, bringing its cumulative 2021 dividend to 2.95 sen per share (42.9% payout ratio).

• Earnings revisions. We revise upwards our 2022F–23F earnings estimates by 2% each to reflect stronger-than-expected sales following the reopening of the economy. Our revised FV also reflects the company’s near-to-medium term plan of continuing to focus on expanding MR DIY’s network given its ability to deliver superior returns (Exhibit 2).

Source: AmInvest Research - 17 Feb 2022