Investment Highlights

• We maintain BUY on MR D.I.Y Group (M) (DIY) with an unchanged DCF-based fair value of RM2.60/share. This implies FY24F PE of 34x, which is 1 std dev above of its 2- year average of 30x. We continue to ascribe a neutral ESG rating of 3-star to DIY.

• 9MFY23 earnings of RM402mil were within expectations, reflecting 70% of our and consensus forecasts. As a comparison, 9M accounted for 68%-71% of FY20-FY22 core earnings. Hence, we made no changes to our FY23F-FY25F earnings.

• The group declared an interim dividend of 0.8 sen per share, which brought 9MFY23 total dividend to 2.2 sen per share (+19% YoY).

• YoY, 9MFY23 revenue grew 10%, mainly attributed to a 16% increase in number of stores to 1,203. Together with gross margin rising by 480bps to 45.2% following the reduction of freight costs and product price adjustment in FY2022, DIY’s net profit improved 19% thanks to better.

• QoQ, 3QFY23 revenue declined marginally by 3% due to the absence of a festive season resulting in lower footfalls, as well as softer consumer sentiment. Coupled with higher operating costs such as staff and utilities as well as increased depreciation on new store launches, 3QFY23 earnings decreased 18% QoQ to RM124mil.

• The company remains confident in its pursuit of opening 180 new stores in FY23F having opened 123 stores YTD across 3 core brands. The company also aims to increase its market presence in East Malaysia (EM), which appears to be underserved with 144 stores currently as at end-3QFY23. The company guided that EM stores has 30% higher average sales per store compared to store sales in Peninsular Malaysia.

• With 1,203 stores as at end-3QFY23, the company targets to launch 180 new stores in FY24F and up to 2k stores by 2028. The new stores opening will be a mixture of its 3 core brands which will be skewed towards more MR DIY flagship concept stores.

• We continue to favour DIY as its robust revenue growth will be driven by (i) ambitious store network expansion plans, and (ii) better product mix by introducing new SKUs to cater for the needs of the affordable market segment.

• At an attractive FY24F PE of 21x, the stock is trading below its historical 2-year average of 30x.

Source: AmInvest Research - 21 Nov 2023