Investment Highlights

• We maintain BUY on MR D.I.Y. Group (M)’s (DIY) with an unchanged DCF-based fair value (FV) of RM2.60/share. This implies a FY23F PE of 43x, 1 standard deviation below its 2- year average of close to 50x. No changes to our neutral 3- star ESG rating.

• FY22 core earnings of RM475mil were largely within our expectation, coming in 3% below our forecast and 1% lower than consensus estimates. We made no changes to our FY23F-FY24F earnings and introduce FY25F net profit premised on a robust revenue growth of 15.5%.

• FY22 core earnings increased by +10% YoY as revenue went up by 18%, mainly driven by a 20% YoY increase of new stores to 1,080, as well as a 23% YoY growth in transaction volume to 142mil. Without the spike in pandemic cases that affected its 1QFY22 net profit, the full year performance would have been better.

• QoQ, 4QFY22 core earnings went up by 35% to RM136m as gross profit rose 18% to RM466mil due to price adjustments on selected products in 3QFY22, coupled with lower freight cost. Revenue increased by 10% on the back of a higher number of stores (+42 QoQ) and better sales during the festive season and school holidays.

• YoY, 4QFY22 revenue climbed 9%, backed by an addition of 180 new stores alongside a 15% improvement in total transactions to 38mil.

• The group declared a total dividend of 2.4 sen per share for FY22, in line with our forecast.

• With 180 new stores opened in FY22, DIY achieved its targeted 1,080 number of stores for the year. The group targets to open a further 180 new stores in FY23F.

• We continue to like the stock given its undeterred store network expansion which has delivered sustainable profitability. While the 4QFY22 same-store-sales growth (SSSG) came down by 7% due to a high base effect, full year SSSG averaged at 1% with its sales per sq ft (psf) remained stable at RM35-37 psf throughout FY19 – FY22.

• Despite the continuous store expansion, there were no signs of sales cannibalisation among the old vs. new stores. We expect the continued downtrend in freight to boost FY23F gross margins to 43% from 41% in FY22, in line with management’s guidance of 43%-44%.

• At 29x FY23F PE, the stock is trading below its historical 2- year average PE of close to 50x.

Source: AmInvest Research - 15 Feb 2023