• Overview. MRDIY’s 1QFY22 revenue increased by 4% yoy to RM905.2m, mainly due to contribution from a number of new stores and higher transactions. However, qoq revenue fell by 7% impacted by lower sales from a short-term resurgence in Covid-19 cases due to the Omicron variant resulting in lower foot traffic and number of operational days. Earnings dropped to RM100.5m (-25% qoq, -19% yoy) mainly attributed to the weakening ringgit vs renminbi and US dollar, higher freight costs, and a proactive 3-month “Price Lock” campaign. Overall, GP margin dropped to 39.2% (-1.2 ppts qoq, -2.9 ppts yoy).

• Key Highlights. The total number of stores jumped to 947 during the quarter (+20% yoy) and higher total transactions of 32.3m (+8.1% yoy), which partially offset a lower average basket size of RM27.8 (-3.7% yoy). Average sales per store declined 14.1% yoy.

• Against estimates: Above. 1QFY22 net profit, making up 26% and 16% of our and consensus FY22f respectively. We considered results above our FY22 forecast as we believe earnings to improve further on strongerthan-expected sales following the reopening of the economy.

• Dividend. Declared DPS of 0.7 sen, representing 44% payout (1QFY21: 0.8 sen, 40% payout). We estimate total FYE22 DPS of 3.2 sen, translating into a dividend yield of 0.9%

• Outlook. We remain upbeat on MRDIY’s business prospects as we anticipate continuous strong demand and higher store traffic across all its brands to benefit from the endemic phase and opening of borders. Management targets to have 1,080 stores in FY22 (+c.180 yoy new stores open). In addition, they have increased products prices effective 2Q22 to manage cost increases and protect its margin in the near term.

• Our call. We revised higher our FY22F/F23F earnings by 29%/35% after factoring higher sales and slight increase in our margin on the back of product price increase. In tandem with earnings revision, we have derived a higher TP of RM4.40 based on PER 45x pegged on FY23F EPS of 9.8 sen. Upgrade to BUY from HOLD.

Source: BIMB Securities Research - 17 May 2022