• MRDIY’s outlook remains strong, underpinned by consistent and strategic expansion plan.
   
• Demand is expected to remain resilient despite subsidy rationalization initiatives, supported by MRDIY’s value-for-money products and other cash aid measures.

• We maintain a ‘BUY’ call on MRDIY with a TP of RM2.30, pegged at 33x PER to FY24F EPS of 6.9 sen.

Strategic Store Expansion Plan

MRDIY has consistently met its target for new stores opening over the years. As of now, MRDIY operates a total of 1,292 stores across Malaysia and Brunei, with plans to open 143 additional stores in FY24. Their goal is to add 708 more stores by 2028, reaching a total of 2,000 stores. Management has emphasized its current focus of expanding in East Malaysia (EM), which constitutes nearly 50% of its remaining expansion target. In EM, MRDIY aims to target underrepresented areas based on i) anticipated higher average sales per store of approximately 30% and ii) high population density per store. Sabah and Sarawak, with populations of 3.6mn and 2.5mn respectively, rank 3rd and 4th in Malaysia for population density, out of a total Malaysian population of 33.4mn. Additionally, we are optimistic on MRDIY PLUS concept store, which integrates all four store types (MRDIY, MR Dollar, MR Toy, and EMTOP) into a single location, expected to yield positive benefits in terms of revenue, manpower savings, and overall operating cost reduction.

Stable Gross Profit Margin from Better Efficiency

The introduction of new warehouse automation (scheduled for commissioning in 3Q24) is anticipated to enhance efficiency and yield cost savings of approximately RM10mn from reduced labour and warehouse rental expenses. Coupled with effective cost-containment efforts by management, we anticipate gross profit margin to remain stable at 45%.

Steady Demand Anticipated

The recent withdrawal of subsidies, such as diesel, is expected to have minimal impact as management has secured exemptions from the government. Furthermore, recent wage increases for civil servants and the flexibility in EPF account withdrawals are expected to counterbalance and ease weakening consumer sentiment, if any. MRDIY's value-for-money product offerings may attract higher-income segments (M40 and T20), diverting their spending to more affordable alternatives offered in MRDIY stores.

Maintain a BUY call with TP of RM2.30

We maintain a ‘BUY’ call on MRDIY with a TP of RM2.30 based on PER 33x (0.5SD below 3-years average forward PE) that is pegged to FY24F EPS of 6.9sen. We like MRDIY due to i) largest home improvement retailer in Malaysia with a solid track record, ii) strategic expansion plans targeting underserved regions, iii) value-for-money products, and iv) higher dividend payout of c.50%-65%.

Source: BIMB Securities Research - 17 Jul 2024