Investment Highlights

• We maintain BUY on MR D.I.Y. Group (M) (DIY) with an unchanged DCF-based fair value (FV) of RM2.60/share. This implies a FY23F PE of 43x, 0.5 standard deviation below its 2-year average of close to 50x. No changes to our neutral 3-star ESG rating.

• 1QFY23 earnings of RM128mil were largely within our expectation, reflecting 22% of our and consensus forecasts. Hence, we made no changes to our FY23F-FY25F earnings.

• YoY, 1QFY23 revenue grew 16% mainly attributed to higher number of stores at 1,125 (+19% YoY), coupled with an 18% growth in transaction volume to 38mil. On top of the higher topline, the bottom line (+27% YoY) was also boosted by gross margin expansion of 5%-points following the reduction of exChina freight costs (-13% YoY).

• Nonetheless, higher operating expenses (+35% YoY) owing to elevated staff costs as part of minimum wage implementation has offset the impact and led to only a marginal increment of 1%-point YoY in the net margin.

• QoQ, 1QFY23 earnings dropped 6% as revenue eased 2% to RM1,046mil due to the absence of festive seasonality. The group declared an interim dividend of 0.6 sen per share, in line with our expectation.

• The company maintains its 180 new stores target for FY23, which predominantly will be in MR DIY and MR DIY Express formats. MR DIY added 45 net new stores in 1QFY23, on track to achieve its target.

• On a side note, as part of its turnaround strategy for MR DOLLAR, the group has started to revamp its price format to a “one plus” up to RM10, from a fixed RM2 & RM5 previously, widening the range of value products being offered.

• Working towards enhancing its merchandise, the group has also conducted trials on a new concept known as EMTOP, which carries extensive hardware essentials priced at a premium, mainly focusing on professional users. EMTOP is a China brand in which DIY holds an exclusive right of selling in Malaysia. Meanwhile, the Disney offerings that the group commenced in Dec 2022 are hopeful of providing additional dimension and novelty, having garnered a total of RM10mil sales (<1% of FY23F revenue) to date.

• We continue to favour DIY given its undeterred store network expansion which has delivered continual performance. Considering that the group hiked its prices in 2QFY22 and 3QFY22, it still manage to post a same-store-sales growth (SSSG) of 0.4% on the back of sustainable transaction volume.

• At FY23F PE of 26x, the stock is trading below its historical 2-year average of close to 50x.

Source: AmInvest Research - 12 May 2023