Investment Highlights

• Maintain BUY with an unchanged DCF-based fair value (FV) of RM2.60/share based on WACC of 7.5% and terminal growth rate of 1.5%. This implies a FY23F PE of 32.6x, 10% below its 2-year average. No changes to our neutral 3-star ESG rating.

• We also maintain our forecasts as MR D.I.Y. Group (M)’s (DIY) 9MFY22 core earnings of RM339m (+14% YoY) is largely within our expectation but below consensus.

• DIY’s 9MFY22 core net profit accounted for 69% of our fullyear forecast and 65% of street’s. As a comparison, 9MFY21 accounted for 69% of FY21 core earnings.

• QoQ, 3QFY22 core earnings dropped 26% to RM101m as revenue seasonally dropped 8% in the absence of festive periods.

• 3QFY22 gross margin increased minimally QoQ, affected by higher freight and input costs.

• YoY, 3QFY22 revenue was up by 26% driven by positive same-store sales growth (SSSG) of 5.5% (Exhibit 2) and increase in the total number of stores by 197 (+23%) to 1,038.

• DIY added 45 net new stores in 3QFY22 (+138 net new stores in 9MFY22), marching towards achieving its targeted 1,080 number of stores for 2022.

• Moving into 4QFY22, DIY is expected to perform better as the final quarter is usually the best period of the financial year, on the back of year-end festive season.

• On a side note, the group’s improving labor headcount is poised to alleviate inventory pressures as more stocks can be moved around.

• We believe DIY’s performance is likely to sustain moving forward, given its value-retailing business model that suits consumers hunting for bargains especially in times of elevated inflation.

• Backed by an over 1,000-strong store network, the group has strong bargaining power with suppliers and economies of scale to provide great value to its customers.

• At 33x FY23F PE, the group is trading at a few notches below its historical 2-year average of 38x.

Source: AmInvest Research - 9 Nov 2022