MDGM’s FY20 core PATAMI of RM349.9m (+6.8% YoY) was above both ours and consensus expectations at 107.6% and 111.0%, respectively. The positive results surprise was due to better-than-expected SSSG and lower-than-expected effective tax rate. After factoring in slightly higher SSSG, our FY21/22 forecasts are increased by 2.0%/1.5%. Along with the rolling over our valuation year to FY22 (from mid-FY22), our TP rises from RM3.33 to RM3.81 based on an unchanged 40x PE multiple. Maintain BUY.

Above expectations. 4QFY20 core PAT of RM117.2m (+2.6% QoQ, +27.1% YoY) brought FY20’s sum to RM349.9m (+6.8% YoY). This is above both ours and consensus expectations at 107.6% and 111.0%, respectively. The positive results surprise was due to better-than-expected SSSG and lower-than-expected effective tax rate. Core PATAMI was arrived at after one-off listing fees amounting to RM12.7m.

Dividend. Declared DPS of 0.7 sen goes ex on 11 Mar 2021. This brought FY20 DPS to 2.2 sen.

QoQ. Despite implementation of CMCO2.0 from mid-Oct, revenue managed to increase +3.8% mainly due to increase in store count of 46 from 688 to 734. PAT rose +2.6% in tandem with better sales.

YoY. +24.5% higher revenue was driven by (i) increase in average monthly sales per store (+4.2% SSSG); and (ii) 141 new store openings. MDGM shared that they saw increase in sales in the ‘other category’ which was mainly from Covid-19 essentials (e.g. face masks, hand sanitiser etc.) (Figure #2). Higher sales and rental concessions of RM2.4m from landlords (due to CMCO2.0) in 4Q20 led to core PAT rising +27.1%.

YTD. In spite of MCO impact on foot traffic in FY20, revenue rose +12.5% from higher store count and higher average receipt size of ~RM26 (from RM22.20 in FY19). After adjusting for 6-week mandatory closure during the MCO period in Mar/Apr, FY20 SSSG improved +4.4%. Core PAT growth (+6.8%) was lesser than sales growth due to increase in admin, staff and A&P expenses attributed to business expansion.

Outlook. Despite Covid-19 outbreak and various MCO restrictions in FY20, we are impressed that MDGM surpassed their target of opening at least 132 retail outlets, with 141 stores (104 MR DIY, 23 MR TOY, 14 MR DOLLAR) opened in FY20. Going into FY21, we expect MDGM to continue to expand outlet count aggressively with a further 175 outlet openings (100 MR DIY, 25 MR TOY, 50 MR DOLLAR). We expect MDGM to ramp up their e-commerce efforts, as the group shared they intend to gradually invest in warehouse automation. While we are positive on this, we note that MDGM’s e commerce offerings are still in its nascent stage, accounting for just 0.8% of sales in FY20. With regards to MDGM’s new retail formats, we are encouraged to hear that MR TOY has already turned marginally profitable in 2H20. While we are positive on the MR DOLLAR retail format in the long term, we understand this business venture is still in its infancy and will require some fine tuning (product offerings, store locations and size etc.).

Forecast. After factoring in slightly higher SSSG, our FY21/22 forecasts are increased by 2.0%/1.5%.

Maintain BUY, TP: RM3.81. After factoring in adjustments to our forecasts and rolling over our valuation year to FY22 (from mid-FY22), our TP rises from RM3.33 to RM3.81 based on An Unchanged 40x PE Multiple.

Source: Hong Leong Investment Bank Research - 18 Feb 2021