Maintain BUY with an unchanged DCF-based fair value (FV) of RM2.60. No changes to WACC of 7.5% and terminal growth rate of 1.5% in our DCF valuation assumption, which implies a PE of 43x based on FY23F EPS. No change in our neutral 3-star ESG rating.
We also maintain our earnings forecasts as MR D.I.Y. Group (M)’s (MR DIY) 2QFY22 core net profit of RM137mil (+37% QoQ, +67% YoY) is within our expectation but below consensus. We exclude a one-off RM2.1mil penalty in relation to the timing of tax deductions from core earnings calculation.
Cumulatively, MR DIY’s 1HFY22 core earnings of RM238mil (+15% YoY) accounted for 48% of our full-year forecast and 43% of street’s.
The sequential rebound in 2QFY22 earnings was mainly attributed to stronger sales due to seasonality from the festive season in April and May. The group’s 2QFY22 revenue grew 16% QoQ, recovering from the previous quarter’s low base to RM1,049mil.
2QFY22 gross margin improved by 1.8% points QoQ as a result of a price revision exercise during the quarter. The full impact of the exercise, a further 1%-point improvement in gross margin, is expected in the upcoming quarters.
YoY, 2QFY22 revenue grew 38% driven by the normalisation of consumer spending and sales from new stores. The group’s 2Q22 same-store sales growth (SSSG) jumped 20% YoY (Exhibit 2).
MR DIY added 46 net new stores in 2QFY22 (+93 net new stores in 1HFY22), closer to achieving its target of more than 1,080 total number of stores by the end of 2022.
Given persistent supply chain disruptions, the group is aiming to improve its inventory turnover days. It stands at a sufficient level of 121 days, but slightly lower compared to 133 days in 2021.
We believe MR DIY’s sales performance is likely to be sustained moving forward despite rising inflation and price revision exercises. Under the inflationary environment, we believe inflation-strapped consumers would gravitate towards value retailers such as MR DIY. Backed by an over 900-strong store network, the group has strong bargaining power with suppliers and economies of scale to provide great value to its customers.
At 38x FY23F PE, the company is trading below its historical 2-year average of 50x.
This book is the result of the author's many years of experience and observation throughout his 26 years in the stockbroking industry. It was written for general public to learn to invest based on facts and not on fantasies or hearsay....