• Sales are expected to remain resilient, thanks to its low-cost leadership and better product mix offer.
• Easing cost pressures should limit earnings downside risk.
• We maintain a ‘BUY’ call on MRDIY with a TP of RM2.30, pegged at 33x PER to FY24F EPS of 6.9 sen.

Outlook Supported by Robust Expansion Plan

MRDIY remains focused on strategic store expansion, optimizing revenue per square foot and operational efficiency to drive earnings growth. The company aims to open 180 new stores in 2024 (totalling to 1440 stores), targeting underrepresented areas in East Malaysia with rationale of i) 58% high population density per store, and ii) higher average sales per store of about 30%. Most of these stores will feature the flagship MRDIY concept on a smaller scale. In the long term, the group's goal is to reach 2,000 stores by 2028, implying an average of 19k population per MRDIY store. Additionally, the company plans to introduce new store formats, brands, or franchise opportunities, with a strategy to leverage existing relationships with suppliers, landlords, and systems to enhance its business model.

Improved Margin

Gross profit margin is expected to be higher at c.45% (the highest since listing) moving forward, owing to the stabilised of freight charges and operating efficiency initiatives (i.e., better product mix and automation). With a network of over 1,000 stores, the group possesses strong bargaining power with suppliers and benefits from economies of scale, enabling the provision of great value to customers. Furthermore, MRDIY’s automated warehouse is expected to be operational by 2Q24, with projected cost savings of about RM10m p.a. mainly from reductions in labour and warehouse rental costs.

Higher dividend policy

The group also revised its dividend policy of not less than 50% (from 40% previously) and plan to reward shareholders with a quarterly dividend payout of c.50-65% going forward. We estimate a total FY24F DPS of 3.8 sen, translating into 2.5% DY.

Maintain a BUY call with TP of RM2.30

We maintain a ‘BUY’ call on MRDIY with TP of RM2.30 based on 33x PER pegged to FY24F EPS of 6.9sen. MRDIY’s sales are expected to remain resilient, attributed to its low-cost leadership and better product mix. We project core earnings to grow at an attractive 2-years CAGR of 18% over FY22 -FY24F. We continue to like MRDIY due to its i) solid track record, ii) largest home improvement retailer in Malaysia and iii) competitive pricing which makes it a key beneficiary from consumer down trading.

Downside risks to our call

i) a sharp increase in input costs, and ii) higher inflation, potentially reducing consumer spending power especially for discretionary goods.

Source: BIMB Securities Research - 17 Jan 2024