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.

• 1HFY23 earnings of RM278mil were largely within expectations, reflecting 49% of our and consensus forecasts. Hence, we made no changes to our FY23F-FY25F earnings. Also, the group declared an interim dividend of 0.8 sen per share, in line with our expectation.

• YoY, 1HFY23 revenue grew 10%, mainly attributed to higher number of stores at 1,168 (+18% YoY), which helped to support a 16% growth in transaction volume to 79mil. On top of the higher topline, the bottom line (+17% YoY) was also boosted by gross margin expansion of 5%-points following the reduction of exChina freight costs and price adjustment in FY2022.

• QoQ, 2QFY23 revenue rose by 5% to RM1.1bil due to high footfalls during the festive season and increased number of store opening. 2QFY23 earnings improved 18% QoQ to RM150mil thanks to the improvement in gross profit margin by 2%-point to 46.3% on easing freight rates and stabilising cost of goods.

• The company remains steadfast in its pursuit of opening 180 new stores in FY23. These stores will primarily adopt the MR DIY and MR DIY Express formats. During 2QFY23, MR DIY successfully introduced 41 net new stores and 2 new power tool EMTOP stores to increase total store count by 4% QoQ to 1,168. This progress is in alignment with its intended goal to achieve 1,260 stores by FY23. To recap, EMTOP stores offer a selection of premium hardware essentials, with a particular emphasis on catering to professional users. The group has set its sights on unveiling yet another EMTOP store within FY23.

• As part of MR DOLLAR's turnaround strategy, the company has shifted its pricing approach from fixed RM2 and RM5 to a flexible "one plus" model, allowing prices up to RM20. This has widened the range of value products available and led to improved sales trends, though still in a gestation period. Additionally, the company has added 2,000 new SKUs (stock keeping units) since April 2023 to enhance store appeal and attract more customers.

• Meanwhile, the construction of a RM100mil fully-automated warehouse is on track for completion by 2Q2024 in Balakong, Selangor. This advanced facility promises enhanced operational efficiency while significantly decreasing reliance on labor with an expected 40% reduction in workforce dependency.

• We continue to favour DIY given (i) its undeterred store network expansion which has delivered accretive revenue growth; and (ii) better product mix by introducing new SKUs to cater for the needs of the affordable market segment.

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

Source: AmInvest Research - 10 Aug 2023