MRDIY’s 1Q23 net profit of RM127.8mn was in line with ours and  consensus expectations, accounting 22.1% and 21.6% of full year  estimates respectively. Net profit rose by 27.1% YoY driven by higher  sales from new stores and margin expansion. MRDIY outlook will be  driven by strategic stores opening (1,260 total stores by end FY23; +16.7% YoY) and resilient gross profit margin on the back of lower  freight cost as well as better economies of scale. Maintain our BUY call  with TP of RM2.50, based on 41x PER pegged to FY23F EPS.

• Within expectations. 1QFY23 net profit of RM127.8mn (QoQ: -6.1%, YoY:  +27.1%) was in line with ours and consensus expectations accounting  22.1% and 21.6% of full year forecast respectively.

• Dividend. Declared DPS of 0.6 sen, representing a 44% payout (1QFY22:  0.7 sen, 44% payout). We estimate total FYE23 DPS of 3 sen, translating  into a yield of 1.9%

• QoQ. MRDIY’s 1QFY23 revenue and net profit dropped by 1.8% and 6.1%  respectively due to seasonal factor. Net margin shaved by 0.6 ppts QoQ  due slightly higher operating cost and the absence of price hike during  this quarter.

• YoY/ YTD. Revenue increased by 15.6% YoY, thanks to the rise in the  Same Store Sales Growth (+0.4%) and positive contribution from new  stores (18.8% increase in number of stores to 1,125) leading to higher  total transaction volume (+18% YoY). Net profit rose by 27.1% YoY driven  by higher revenue and improved GP margin to 44.3% (+5.1 ppts YoY). Margin improvement was predominantly driven by lower freight rate.

• Outlook. MRDIY outlook will be driven by strategic store openings and  stable margins. The current total number of stores is 1,125 and it is on  track to meet the target of 1,260 total stores by end of FY23 (+16.7% YoY).  The bulk of this growth will come from MRDIY format stores, including  MRDIY Express, as well as the conversion of some stores to MRDIY PLUS  stores (offering great value with all three brands under one roof). The  group is expected to add 14 new MRDIY PLUS stores in FY23 (currently 29  stores), which could see positive benefits in terms of revenue, manpower  savings, and overall operating cost reduction. In terms of MR Dollar, they have adjusted their pricing strategy from fixed prices (RM2 and RM5 items) to one plus formula (RM1-10 per item). Simultaneously, GP margin is expected to improve by 3-4 ppts given upward pricing adjustment.

• Our call. We reiterate our BUY call on MRDIY with TP of RM2.50 based  on 41x PER pegged to FY23F EPS of 6.1 sen. We continue to like MRDIY  due to its i) solid track record, ii) attractive FY23F earnings growth of  22.5%, iii) largest home improvement retailer in Malaysia with market  share of 41.8% (average growth of 4% annually) and iv) competitive  pricing, a boon for top line during inflationary environment and cautious  consumer sentiment.

Source: BIMB Securities Research - 12 May 2023