Value retailers to gain prominence amid elevated inflation. We believe MRDIY’s sales performance is likely to be sustained despite persistent high inflation and price revision exercises. In our view, inflation-strapped consumers would gravitate towards value retailers such as MRDIY. Underpinned by over 900-strong store network, the group has strong bargaining power with suppliers and economies of scale to provide value to its customers.

Despite lingering concerns over inventory shortages in MRDIY as >70% of its products sourced from China amid protracted supply chain disruptions, we reckon that MRDIY’s inventory days of 126 should be sufficient to cover more than one quarter of sales. Separately, the margin erosion experienced in 1H22 is expected to improve in 2H22 following the price hik e across broad categories of MRDIY’s products in April and May (to be reflected in upcoming earnings).

Riding on steady store expansion. In 1H22, MRDIY opened 93 new stores, which makes up 52% of the group’s target of 190 additional stores for FY22. This includes the recently launched Mr DIY Plus in Mid Valley Megamall that spans a bigger space of 30k sqft (vs average 10k sqft Mr DIY), which houses all three brands – Mr DIY, Mr Dollar, and Mr Toy – under one roof. We gather that the initial reception of Mr DIY Plus is encouraging, with more than 100k transactions in the first month. We also gather that the group is planning to expand Mr DIY PLUS to 10 stores in the next 2-3 years with a focus on prime locations with higher foot traffic. We think the launch of Mr DIY PLUS would bolster MRDIY’s brand stature and further widen its exposure, given its larger and more upscale format, with 20,000 types of products across five major categories, namely, hardware, household and furnishing, electrical, stationery and sports equipment product.

In light of steady store expansion and omnichannel strategy (online, Touch ‘n Go collaboration), we are projecting Mr DIY’S core PATAMI to register a strong 37.2% FY21-24F CAGR.

Limited downside. Technically, MRDIY is trading at the support area of RM1.95-2.10, with indicators showing uptick bias. A successful breakout above RM2.13 (0.618 FR) will spur the prices toward RM2.20-2.28-2.36 level. Cut lost at RM1.90.

Source: Hong Leong Investment Bank Research - 30 Aug 2022