• We deem MRDIY’s 9MFY23 results in line with our expectation at 73% of our FY23 estimate, but below Bloomberg consensus’ at 70%.

• MRDIY keeps its annual net new store guidance at 180, with plans to further penetrate East Malaysia, and tweaks its dividend policy to 50-65% payout.

• Reiterate Hold with an unchanged TP of RM1.50 (23x CY24F P/E).

3QFY23 Results Came in Line With Our Expectations

• MRDIY today (20 Nov) announced 3Q23 core net profit (CNP) of RM122.8m (-18.1% qoq, +21.4% yoy), bringing 9M23 CNP to RM400.9m (+16.7% yoy). We deem MRDIY’s 9M23 results to be within our expectation at 73% of our full-year forecast as its 4Q is historically its strongest for the year, but below Bloomberg consensus’ at 70%. The higher yoy CNP in 3Q23 were mainly driven by new store additions (+35 new stores in 3Q23), easing input costs and full reflection of price hikes undertaken in 3Q22.

Key Highlights From 3QFY23 Briefing Call

• We gather that management is keeping its annual new store guidance at 180 (majority to be its flagship MR.DIY concept stores), with potential growth upside from penetrating further into the underserved areas in East Malaysia. Management’s outlook appears cautious on weak consumer spending (avg. basket size of RM25.5 in 3Q23 vs. RM27 in 3Q22), which we believe could be due to spending shifting more towards services and experiential purchases.

• While management tweaks its dividend policy from at least 40% payout to no less than 50%, with a target payout of c.50-65% going forward, the FY24F dividend yield we estimate works out to be just less than 3% even at the upper range of the payout.

• From our read, investors are keen to ascertain potential future growth impetus that may drive higher profitability for MRDIY besides store openings. While management shared that its upcoming warehouse automation could result in annual net savings of RM10m (1.6% of our FY24F CNP), and that potential bolt-on acquisitions and new store formats could be among its growth plans, we keep unchanged our FY23F/24F/25F EPS estimates; they are 3%/7%/13% lower than Bloomberg consensus.

Reiterate Hold With An Unchanged TP of RM1.50 (23x CY24F P/E)

• We reiterate our Hold call on MRDIY as we believe current valuations have accounted for its potential earnings growth and share price upside. Our TP of RM1.50 (FY24F ROE of 32%, COE of 9.5%, and long-term growth of 5.5%) implies CY24F P/E of 23x, a 12% premium over our consumer discretionary sector average CY24F P/E of 20.6x, which we believe is fair given its strong brand equity and as a KLCI constituent) Re-rating catalyst: stronger profitability driving higher ROE. Downside risks: weaker-thanexpected consumer sentiment on its stock and weaker-than-expected operating margin.

Source: CGS-CIMB Research - 20 Nov 2023