• Overview. MRDIY’s 3Q22 net profit increased by 12% YoY, thanks to the  rise in the Same Store Sales Growth (SSSG) (+5.5%) and positive  contribution from new storesleading to higher total transaction volume  (+40% YoY). However, on QoQ basis net profit dropped by 25.2% mainly  due to the decrease in overall transactions in the absence of festive  periods.

• Key Highlights. 3Q22 profit margin dropped by 2.4 ppts QoQ and 1.3 ppts YoY mainly due to overall higher input and freight costs. Note that,  freight cost has eased significantly and price adjustments made in 2Q22  & 3Q22 will see positive impact in 4Q22 and 1Q23 due to lag effect. Overall, GP margin is expected to increase c.1.5-2% to c.43% which is  very close to pre-pandemic margin level.

• Against estimates: Inline. 9M22 net profit of RM336.9mn was in line  with our full year forecast or at 67.3%. We deem this to be broadly  within expectations as we expect a higher 4Q numbers due to  seasonality effect and margin recovery from the full impact of price  hikes implementation.

• Dividend. An interim DPS of 0.5 sen was declared bringing YTD DPS to 1.8sen. We estimate a total FYE22 DPS of 2.1 sen, translating into a DY  of 1.1%.

• Outlook. MRDIY current total number of stores is 1,038 (+23% YoY) and  on track to meet the target of 1,080 total stores in FY22. The group is  targeting to open c.180 new store in FY23 (DIY: 125, Express: 35, Dollar  & Toy: 20). Moving forward, MRDIY’s long term earnings growth will be driven by store expansion plans and we believe there is still room for opportunity in non-urban areas which have less competition and lower  capex. Margin to remain stable on the back of better operating  efficiency and economies of scale. Additionally, we believe MRDIY  competitive pricing is an attractive value proposition during current  inflationary environment.

• Our call. We maintain a BUY call on MRDIY with unchanged TP of RM2.65 based on 41x PER pegged to FY23F EPS of 6.5 sen. We continue  to like MRDIY due to its solid track record, largest home improvement  retailer in Malaysia and better product mix.

Source: BIMB Securities Research - 9 Nov 2022